The Managed Care Organization Tax Authorization Initiative, proposition 35 on the state ballot, seeks to make the Managed Care Organization (MCO) — a health care tax that requires federal approval every few years — more permanent by requesting federal approval on an ongoing basis.
The MCO is a constantly renewed tax originating in 2009; it was last renewed in 2023 and is set to end in 2027. Most of the MCO’s revenues, estimated to be around $7-8 billion annually, is spent on Medi-Cal, a program to help 14 million underprivileged and low-income Californians get access to health care.
I would vote a very hesitant no, walking the line between yes and no, in fear that it would cause budget cuts to other programs. As the national deficit grows, the government is forced to cut programs to salvage as much money as possible, such as $1.1 billion that has already been cut from affordable housing, homeownership, and homelessness programs, and they would overturn allocations to medical coverage for young children by forcing all money to go to Medi-Cal rather than other medical programs.
Setting the MCO tax in stone is also scary, as it prevents any adapting to future revisions to MCO law. The fear is that it would take away money from other social services, essentially creating an economical nightmare through limiting the flexibility of California’s budget choices.
Spending the MCO’s revenue on Medi-Cal has multiple benefits: it decreases the amount the state needs to spend on Medi-Cal from the General Fund, a government fund intended to be used on public services, and increases the pay given to doctors through Medi-Cal.
Along with these benefits, the MCO’s budget is also spent on other health services and programs such as increases to base rates of primary care, maternity care and non-specialty mental health services as well as the aforementioned allocations to medical coverage for young children. The main issue, though, is that Medi-Cal costs have risen even as services have declined, a trend seen as in 2023-2024, when Medi-Cal received $400 million less funding. However, a light at the end of the tunnel is legislation that becomes active in 2026, potentially providing more funding to this program.
The changes Prop 35 would make the MCO more permanent, but not completely set in stone. It would require the state of California to request federal approval of the MCO continuously. One foreseeable issue of this however, is that the MCO is unstable, with potential revisions to the laws that govern the MCO tax. The exact changes are uncertain, but there most likely will be changes within the foreseeable future.
More importantly, Prop 35 would change the entire budget of the MCO tax, allocating more money to Medi-Cal. It would give roughly $2 to $5 billion extra to Medi-Cal while incurring extra costs of $1 to $2 billion from the General Fund annually. It also forces lawmakers to directly give this money to the doctors and health care workers instead of other places.
The short-term benefits of such legislation is the added funding to low-income Californians. It would protect and increase access to care for these Californians by directing more funding to them and preventing lawmakers from allocating funds to other medical services.
In theory Prop 35 looks good, but the unknown long-term effects could be detrimental. Economically, it would only serve to deepen the $56 billion deficit California has this year and set where the MCO’s revenue is going in stone. Looking at the present, it would completely break the balance of the 2024-2025 budget plan. The proposition also looks to be more important than it is, even if voters vote no on Prop 35, it would continue to be approved by the federal government. This is like voting to permanently pay for a subscription to a service whose terms of service can change, while taking money from your other necessities to pay for it.
