While applauding several aspects of the California state budget recently signed by Gov. Gavin Newsom, health plans expressed concern that the budget moves forward with the 2027 transition of 2 million Medi-Cal members out of managed care and into the fee-for-service delivery system. 

Moving patients out of a coordinated care delivery model into a system with limited specialty access creates a two-tiered system, overburdens providers and patients, and risks higher long-term costs, according to Local Health Plans of California (LHPC). “While we appreciate that the budget provides resources to address continuity of care and navigation, those resources will not mitigate the disruption that will accompany this transition," LHPC said in a press release. 

The California Association of Health Plans noted that the budget agreement, which includes a $1.5 billion tax increase on commercial health coverage, will raise premiums by more than $400 a year for a family of four.  “We are deeply disappointed that the Governor has approved a budget that balances the state’s books on the backs of California’s working families and small businesses with a big tax increase on their health coverage….The Governor’s budget also forces vulnerable immigrant communities into Fee-for-Service Medi-Cal, a shift that will mean fewer supports, worse health outcomes, and more time spent in hospital emergency rooms.”

L.A. Care Health Plan, the nation's largest publicly operated health plan, also expressed disappointment in the decision. While the health plan recognizes the significant fiscal challenges facing the state, L.A. Care said it believes this decision represents a step backward for the progress California has made in expanding access to coordinated, community‑based care. This decision also undermines years of coordinated work to build a system capable of meeting the complex needs of low‑income Californians, L.A. Care said. 
 
“It has taken decades to build the managed care networks that give low‑income communities real access to quality care,” said Martha Santana-Chin, CEO of L.A. Care, in a statement. “Provider supply varies widely across the state, and only strong local partnerships can sustain reliable, contracted networks and the support necessary to help people navigate a complex healthcare system. For example, a behavioral health network capable of treating anxiety, depression, and other needs simply does not exist in fee‑for‑service. In fact, the budget acknowledges these realities by anticipating reductions in outpatient and preventive care and higher emergency and inpatient use. Moving people who only recently gained coverage and are now being treated for depression, cancer, chronic conditions, and other serious needs out of these established managed care networks lacks compassion.”

LHPC developed an alternative proposal that it says preserves continuity of care and avoids widespread disruption while remaining compliant with federal requirements signed into law last July. Under LHPC’s approach, Medi-Cal members would remain enrolled in managed care plans and continue accessing established provider networks, care coordination services, community supports, and other benefits.

L.A. Care did applaud some things in the budget agreement. It delays previously identified cuts to adult dental benefits for adults without legal status, preserves full‑scope Medi‑Cal for vulnerable groups such as asylees and survivors of trafficking and domestic violence, maintains the higher asset limit through July 2027, and protects acupuncture as a Medi‑Cal benefit. It also provides $300 million to reduce Covered California premiums and includes $39 million to support a smoother transition for UIS enrollees, including dedicated funding for care coordination.

The Community Clinic Association of Los Angeles County (CCALAC), the largest regional association of community health centers in California, noted that the budget includes funding for community health centers’ top priorities, including continuing existing reimbursement rates for state-only funded Medi-Cal services for another year. 

“Over three-fourths of health center patients are Medi-Cal members, so Medi-Cal reimbursement is the backbone of health centers’ financial stability. The health center Prospective Payment System, known as PPS, enables health centers to provide comprehensive, whole-person care and critical wrap-around services that promote patient health,” said Louise McCarthy, president and CEO of CCALAC, in a statement. “The loss of PPS, in combination with H.R. 1 coverage losses and rising uncompensated care, would have pushed safety net clinics to the breaking point. Maintaining PPS for another year is a lifeline. We look forward to working with the next administration on long-term solutions to ensure the viability and sustainability of community health centers.”