Prop. 52: California Voters Approve Limitations on the Use of State Fees Paid by Hospitals

NHS-nurse-hospital_2519626bProposition 52 was adopted by the voters on Nov. 8 to protect quality assurance fees paid by hospitals to capture more federal Medi-Cal dollars. Prop. 52 is an initiative statutory and constitutional amendment which increases the required vote threshold from majority to two-thirds for the Legislature to amend existing law that imposes these fees on hospitals for the purpose of obtaining federal Medi-Cal matching funds and that directs those fees and federal matching funds to hospital-provided Medi-Cal health care services.

The ballot measure’s proponents call it the Medi-Cal Funding and Accountability Act. Prop. 52 also eliminates existing law’s sunset date and declares that law’s fee proceeds shall not be considered revenues for purposes of applying the state’s spending limit or determining required education funding in accordance with current state law.

According to a fiscal estimate prepared by the Legislative Analyst and Director of Finance, the enactment of Prop. 52 will result in “state savings from increased revenues that offset state costs for children’s health coverage of around $500 million beginning in 2016-17 (half-year savings) to over $1 billion annually by 2019-20, likely growing between 5 percent to 10 percent annually thereafter.

“Increased revenues to support state and local public hospitals of around $90 million beginning in 2016-17 (half-year) to $250 million annually by 2019-20, likely growing between 5 percent to 10 percent annually thereafter.” To put these amounts in perspective, several years ago while the state was in a financially dire position, $260 million was diverted to general fund uses.

According to the official ballot arguments, a YES vote on this measure meant: “An existing charge imposed on most private hospitals that is scheduled to end on January 1, 2018 under current law would be extended permanently. It would be harder for the Legislature to make changes to it. Revenue raised would be used to create state savings, increase payments for hospital services to low-income Californians, and provide grants to public hospitals.”

According to the proponents of Proposition 52, the measure extends the current state Medi-Cal hospital fee program which generates over $3 billion a year in federal matching funds that pay for health care services for children, seniors and low-income families. Proposition 52 prohibits the Legislature from diverting this money for other purposes without voter approval.

On the other hand, also based upon the official ballot arguments, a NO vote on this measure meant: “An existing charge imposed on most private hospitals would end on January 1, 2018 unless additional action by the Legislature extended it. Removes all accountability and oversight of over $3 billion of taxpayer dollars. Gives $3 billion to hospital CEOs with no independent audit and no requirement the money is spent on health care. Public funds can be spent on lobbyists, perks and salaries for hospital bureaucrats instead of children and seniors.”

By way of background provided by the independent Legislative Analyst Office, the Medi‐Cal program provides health care benefits to low‐income Californians who meet certain eligibility requirements. These health care benefits include services such as primary care visits, emergency room visits, surgery and prescription drugs. Currently, Medi‐Cal provides health care benefits to over 13 million Californians. Total spending on Medi‐Cal in 2015‐16 was roughly $95 billion, of which about $23 billion was from the state’s General Fund.

The cost of the Medi-Cal program is shared between the state and federal governments. Public and private hospitals provide care to people enrolled in Medi-Cal. There is a quality assurance fee (QAF) that the state has imposed upon most private hospitals. It has been collected since 2009. The QAF has generated about $18 billion in federal funds since that time and has benefited more than 7 million children and 1.6 million seniors, according to the proponents of Prop. 52.

According to the LAO, the hospital QAF results in a net benefit to the hospital industry and monies from the QAF result in state savings. The Legislature and federal government have previously approved extending the QAF. Under Prop. 52, the hospital QAF has been made permanent and the State will be limited in its ability to either change or end the QAF. This change will also eliminate the uncertainty whether the program will continue.

Prop. 52 includes the following Statement of Findings:

“A. The federal government established the Medicaid program to help pay for health care services provided to low-income patients, including the elderly, persons with disabilities, and children. In California this program is called Medi-Cal. In order for any state to receive federal Medicaid funds, the state has to contribute a matching amount of its own money.

“B. In 2009, a new program was created whereby California hospitals began paying a fee to help the state obtain available federal Medicaid funds at no cost to California taxpayers. This program has helped pay for health care for low-income children and resulted in California hospitals receiving approximately $2 billion per year in additional federal money to help hospitals to meet the needs of Medi-Cal patients.”

In addition, the measure contains the following Statement of Purpose: “To ensure that the fee paid by hospitals to the state for the purpose of maximizing the available federal matching funds is used for the intended purpose, the people hereby amend the Constitution to require voter approval of changes to the hospital fee program to ensure that the state uses these funds for the intended purpose of supporting hospital care to Medi-Cal patients and to help pay for health care for low-income children.”

As a constitutional amendment, Prop. 52 classifies the revenue generated under this ballot measure as a trust fund. Moreover, these fee proceeds are exempt from the minimum school funding guarantee law (Prop. 98). These trust fund revenues can be used to offset state costs. The purpose is to protect the funds and ensure they are properly spent for their intended purpose.

There are instances in which the hospital QAF can become inoperative, such as where the federal government denies approval of the matching funds or the relevant federal agency (CMS) decides that the QAF cannot be implemented. The state may have to make certain modifications to the QAF program to comply with relevant changes to federal law.

As a result of the enactment of Prop. 52, the hospital QAF will be made permanent (unless the federal government eliminates the matching program) and it will be difficult, even in tough budget times, for the Legislature and governor to swipe these fees, the obvious intent of the ballot measure’s proponents. Time will tell whether the opponents’ claims of no oversight will be accurate. In the meantime, the hospital QAF will continue while the federal funding program is available.

Chris Micheli is an attorney and legislative advocate with the Sacramento governmental relations firm of Aprea & Micheli. 

Hospitals Spending Millions to Inflict More Pain On Taxpayers

NHS-nurse-hospital_2519626bIn 2012, those of us who opposed Proposition 30 were told that the measure, which was the largest state tax hike in American history, was just a “temporary” fix to address the emergency of a severe budget shortfall. But just as Milton Friedman noted that “nothing is so permanent as a temporary government measure,” here in California it appears that nothing is so permanent as a temporary tax increase.

However, in their journey to extend the Prop. 30 tax hikes, the tax raisers started tripping over their own greed. Even the public sector union bosses weren’t reading off the same page and different proposals began to emerge, each targeting billions of dollars of tax revenue to their respective constituencies. And compounding the problem was the fact that the “emergency,” which was the entire justification for Prop. 30 in the first place, disappeared. California now has a budget surplus.

But greed being a powerful motivator, the special interests worked out a compromise that focused on extending only the income tax portion of Prop. 30 and jettisoning the sales tax. This move was politically expedient given that only the income tax portion targeted “evil” rich people while the sales tax extension would have been an almost impossible sell. (If the version of the Prop. 30 extension currently gathering signature passes, California’s highest in the nation tax rate of 13.3 percent would be extended until 2030).

In Sacramento, the normal political dichotomy is between those interests seeking to preserve what they have (i.e., businesses and taxpayers) and those interests seeking to take resources from, or impose regulations on, the former. For example, homeowners want to keep their tax dollars and thus are supportive of Proposition 13 while public sector labor interests and local governments want more of those dollars and thus loath Proposition 13 as it impedes their tax raising ability.

But the dichotomy sometimes breaks down because the line between private interests and public interests isn’t always clear. For example, California has both private and public hospitals with private institutions outnumbering the public by a factor of six. So one would think that the interests of hospitals would be more aligned with seeking lower taxes. But because hospitals get billions in public revenue for Medi-Cal, they have no problem seeking higher revenues for themselves at the expense of others.

And that is why the California Hospital Association has donated $12.5 million to the effort to extend California’s sky high income tax rate. Apparently, they remain unconcerned about the economic damage that comes from excessive taxes.

But the hospitals’ doubling down on the Prop. 30 extension may not have been well thought out. That is because they want desperately to have voters approve another measure that has already qualified for the ballot in November. Originally intended for the 2014 ballot (but they missed the deadline) this proposal requires high procedural requirements (two-thirds vote of the Legislature and voter approval) before some of the existing Medi-Cal reimbursements to hospitals can be reduced.

So the question that voters must now ask themselves is why should we support the hospital industry in its effort to protect what it currently gets from government while it is also trying to force a $6 billion to $11 billion annual tax hike on Californians?

Good question.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Originally published at