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This story was originally published by CalMatters. Sign up for their newsletters.

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Six months after California voters overwhelmingly approved a ballot initiative that increases the pay of doctors treating Medi-Cal patients, Gov. Gavin Newsom wants to divert that money to cover other health costs.

Newsom last week proposed using $1.6 billion generated by Proposition 35 over the next two years to help address California’s $12 billion state deficit. The governor said the spending plan is allowable under the ballot measure, while doctors, hospitals, clinics and others who support the measure are crying foul.

Rising costs are making Medi-Cal, the state’s health insurance for low-income people, unsustainable, triggering a controversy over use of funds that voters earmarked for specific health costs, such as doctor’s pay and women’s reproductive health.

In addition to reallocating the Prop. 35 funds, the governor also wants to move $500 million from the state tobacco tax into the state’s general fund. That money, which voters approved in a 2016 ballot measure, is supposed to support family planning and women’s health care, among other services.

Health advocates say the governor’s proposals for shifting the money will weaken the state’s health safety net and hamstring reproductive health care.

Planned Parenthood said the double hit from Newsom’s Prop. 35 and tobacco tax proposals in the state budget could cripple its services.

Jodi Hicks, chief executive of Planned Parenthood Affiliates of California and co-chair of the Yes on Prop. 35 campaign, called Newsom’s proposal “shocking” and “plain cruel.” She said Planned Parenthood would lose a third of its budget if it is approved by the Legislature next month. Low-income patients would have to contend with longer wait times, fewer appointment options and potentially need to drive further to access care.

“Our footprint is so large in sexual and reproductive health care in California. There is no way for other clinics to absorb that,” Hicks said.

Newsom’s proposal comes at a time when the Republican-led Congress is contemplating deep cuts to Medicaid. Included is cutting off all federal funding for Planned Parenthood. (Medi-Cal is California’s name for Medicaid.) “We need the state to help us prepare, not make things significantly worse,” Hicks said.

“Our footprint is so large in sexual and reproductive health care in California. There is no way for other clinics to absorb that.”
— Jodi Hicks, Planned Parenthood Affiliates of California

The use of state health funds will likely be a centerpiece as the state Legislature negotiates a budget deal with Newsom over the next month. A final budget is due June 15.

The state’s Democratic lawmakers, who have a supermajority in the Legislature, have largely balked at Newsom’s changes to Medi-Cal, which also include freezing new enrollment for most adults without permanent legal status.

“I’m disheartened that the Governor’s updated budget is riddled with deep cuts to our constituents’ healthcare. We cannot boast about having the fourth-largest economy while balancing our budget on the back of everyday Californians’ healthcare,” Assembly Health Committee Chair Mia Bonta, a Democrat from Oakland, said in a statement.

Is it legal to move Prop. 35 funds?

Prop. 35, approved by 68% of California voters in November, was designed to guarantee doctors would get paid more to serve patients covered by Medi-Cal. Reimbursement rates for Medi-Cal are so low that patients often struggle to find doctors who will accept their insurance.

Prop. 35 uses a special tax paid by health insurance plans to generate revenue for Medi-Cal. Most of the money — $9 billion in 2024-25 — goes to the state’s general fund. But the additional $1.6 billion that Newsom wants to take for general Medi-Cal spending was supposed to be reserved to increase the amount doctors get paid for specific services, such as primary care, specialty care and emergency room visits.

Newsom’s budget proposal would instead use the $1.6 billion intended for doctors’ pay increases to support higher Medi-Cal spending for primary care, specialty care, ambulances and hospital outpatient procedures.

Planned Parenthood and the California Medical Association helped lead the industry group that put the measure on the ballot.

In a statement, Dr. Shannon Udovic-Constant, president of the medical association, called Newsom’s budget proposal a “direct violation of the will of California voters.”

“The proposition was passed to prevent exactly this kind of maneuver – raiding health care funding to solve budget problems,” she said.

“The proposition was passed to prevent exactly this kind of maneuver – raiding health care funding to solve budget problems.”
— Dr. Shannon Udovic-Constant, California Medical Assn.

When questioned about the move during a budget presentation on Wednesday, Newsom denied this characterization and said the proposed spending is “absolutely consistent” with the rules established by the ballot measure.

Newsom repeatedly blamed Prop. 35 for causing part of the state’s budget shortfall and called it and other recent ballot measures “unfunded initiatives.”

The governor said Medi-Cal has a growth problem that the state cannot afford.

State spending on Medi-Cal has more than doubled since 2017 and is now projected to cost $76.8 billion in the 2024-25 budget year. Earlier this year lawmakers approved an extra $6 billion for unexpected Medi-Cal costs.

The governor said Medi-Cal has a growth problem that the state cannot afford. State spending on Medi-Cal has more than doubled since 2017 and is now projected to cost $76.8 billion.

Linnea Koopmans, chief executive of the Local Health Plans of California and chair of the Prop. 35 advisory committee, said in a statement to CalMatters that Newsom’s budget does not reflect California’s values.

“Undoubtedly, the state budget challenge is real, but sweeping more than $1 billion of (Prop. 35) revenue is not an option. These funds must be used to support Medi-Cal investments in providers and workforce that are necessary to improve access to care,” Koopmans said.

The Prop. 35 advisory committee was established by the ballot initiative to oversee how the state spends the money.

Industry supporters of the measure say Newsom’s proposal doesn’t actually pay doctors more; it conflates increased costs associated with Medi-Cal’s growing enrollment with payment.

Molly Weedn, a spokesperson for the Yes on 35 campaign, said in a statement that the budget proposal raises “serious legal concerns.”

“The Governor proposes using Prop. 35 funding to cover already incurred costs in Medi-Cal and not for increasing provider payments to increase access to health care,” Weedn said.

The most contentious part of the debate comes down to whether he’s using the Prop. 35 money to pay the state’s general expenses, not just health care.

The Newsom administration’s finance department said in a document shared with CalMatters that doctors’ pay is reviewed and increased annually, which aligns with Prop. 35’s requirements. The department also denies that using the money to pay for Medi-Cal would replace general fund spending because the amount that the state is taking from the general fund for Medi-Cal continues to grow.

Critics say these standard adjustments are not necessarily a true rate increase for doctors — they mostly reflect increased Medi-Cal costs as a result of more patients enrolling or more expensive care being provided. In order to substantially increase how much doctors get paid, the state would have to submit an application for federal approval, which it has not done.

“It appears the caseload growth in Medi-Cal is being used to justify the need for these funds,” said Jennifer Kent, an advisor to the Prop. 35 campaign and former director of the health care services department.

Newsom isn’t the first governor to sweep money approved by voters into the general fund, and his budget proposal also mirrors a move made by his predecessor, Jerry Brown, in 2017 to eliminate payments made for family planning, women’s health and dentistry by the state tobacco tax.

Amy Moy, co-chief executive of Essential Access Health, which provides grants to clinics for reproductive health care, said the governor’s proposed cuts jeopardize California’s commitment to making abortion, contraceptives and other reproductive health services accessible.

Moy, a member of the Proposition 35 stakeholder advisory committee, said she is confident the final budget approved by the Legislature will pull back some of Newsom’s proposed cuts.

“Ultimately we believe that California’s commitment, including our administration’s commitment, to sexual and reproductive health will be reflected in the final budget.”

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Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a price they can afford. Visit www.chcf.org to learn more.