Sample Medi-Cal benefits card
A sample Medi-Cal benefits card. Department of Health Care Services

Governor Gavin Newsom just unveiled a new budget proposal aimed at digging California out of a $54 billion deficit brought on by the pandemic. He hopes to slash Medi-Cal payments to healthcare providers and use the money to enroll more people in the program.

This week, the Democrat-led state legislature rejected those cuts in a budget proposal of their own. They’re right to do so. Cutting doctors’ pay will make it harder for the Medi-Cal’s beneficiaries to get care — especially with enrollment set to swell as the newly unemployed sign up.

Governor Newsom has his eyes on $1.2 billion in revenue from Proposition 56, a 2016 ballot initiative that raised tobacco taxes to increase payments for healthcare providers that treat Medi-Cal patients. The measure also helped doctors and dentists with their student loans if they promised to work in areas with shortages of qualified healthcare personnel and see a certain number of Medi-Cal patients.

Medi-Cal’s payment rates are notoriously low — about 50 percent below Medicare’s rates, which are themselves about 50 percent below those of private insurers. Those low rates have historically discouraged providers from seeing the program’s beneficiaries. Between 2013 and 2015, the share of doctors participating in Medi-Cal declined from 69 percent to 63 percent.

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Beneficiaries who live in rural, inland areas often have to travel hours to see a specialist. A 2014 report from the California State Auditor found that there were no dentists accepting new Medi-Cal patients in 16 counties.

Cutting Medi-Cal reimbursements would prompt healthcare providers to opt out of the program just as demand for their services jumps. As many as one in four Californians may be out of work, according to the state’s Employment Development Department. Many of the unemployed will turn to Medi-Cal for coverage, if they haven’t already. Indeed, Governor Newsom’s own budget predicts Medi-Cal enrollment will increase to 14.5 million by July. That’s 2 million more than estimated before the COVID-19 outbreak — and equivalent to more than one-third of the state’s total population of 39.5 million.

Even as the governor proposes to slash spending that would benefit the state’s poorest residents, he’s preserving enormous taxpayer handouts for wealthier patients.

Last year, the state began subsidizing health insurance purchased through Covered California for those with incomes between 400 and 600 percent of the federal poverty level. That’s between $103,000 and $155,000 for a family of four. The state budgeted some $345 million to cover subsidies for this group of relatively well-off people.

Is it really the best use of scarce state resources to subsidize insurance premiums for those with six-figure incomes when millions of Medi-Cal patients could struggle to find a doctor who will see them?

The Democrat-led state legislature’s budget may have the better argument on Medi-Cal reimbursement rates. But their plans border on fantasy. For example, they’re banking on billions in aid from the federal government that has yet to materialize and accounting gimmicks like a one-day delay in paychecks for state employees that would shift those costs to the next fiscal year.

There’s plenty of fat to trim from California’s budget. But Medi-Cal reimbursement isn’t it. Governor Newsom — and the state legislature — need to go back to the drawing board.

Sally C. Pipes is president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020).