Major Health Care Affordability Help for Covered California Enrollees

  • The 2023-2024 state budget agreement announced between the State Legislature and Governor Gavin Newsom includes a major new agreement to improve health care affordability for hundreds of thousands of Covered California enrollees.
  • Agreement will ensure that the majority of funds raised from the tax penalty for not having coverage goes back into a fund to specifically lower health care coverage costs for consumers, such as eliminating $5,000 deductibles for those under 400% of poverty.
  • Consumer advocates also applaud “MCO tax” deal that would provide more federal funds for new investments in Medi-Cal.

SACRAMENTO, CA – The State Legislature and Governor Gavin Newsom have reached an agreement on the 2023-24 state budget which includes major health care investments.

The deal will provide funds to significantly reduce out-of-pocket costs for nearly a million consumers in Covered California. Following years of advocacy by consumer and health groups, the majority of money raised from the individual mandate tax penalty will be safeguarded to lower costs for those who purchase plans on their own through the state’s marketplace. Specifically, the agreement allocates $82.5 million to the Health Care Affordability and Reserve Fund to lower costs for Covered California enrollees in 2024, and $165 million in 2025 and beyond. For instance, this investment has the potential to wipe out hospital deductibles for enrollees who earn under 400% of the poverty level – which are currently $4,750, and without action are set to go up to $5,400 next year.

“We commend the State Legislature and Governor for coming to an agreement that will provide real relief to many in Covered California who are struggling to afford their health care costs. This investment will mean more people will be able to access care and not be hit with a huge bill,” said Diana Douglas, Policy and Legislative Director for Health Access California. “With this budget, health care money will stay in health care, lowing costs and improving access.”

In May, the Governor’s budget proposal included a claw-back to the General Fund of $333 million raised from the individual mandate tax penalty and meant for the Covered California affordability fund. The State Assembly and State Senate strongly supported a proposal to use these funds to help eliminate deductibles and lower co-pays in Covered California and not be diverted into the General Fund. Today’s agreement represents a compromise between the Governor and Legislature that helps health consumers starting next year.

A report from the California Budget and Policy Center earlier this year found that nearly 2 in 5 households who reported that they owed the penalty for tax year 2020 had incomes at or below 266% of the federal poverty level (FPL). These are the exact people that would be incentivized to enroll in coverage by higher-value plans if out-of-pocket costs were reduced. The report also states that California is expected to have raised a total of $1.4 billion in individual mandate penalty revenue from 2020 through 2024. However, before this budget agreement “none of these dollars [had] been specifically budgeted to reduce the cost of insurance purchased through Covered California.”

Consumer advocates also support the managed care organization (MCO) tax agreement to draw down more federal dollars, which enables the potential of new investments to improve Medi-Cal reimbursement rates for providers.

“Drawing down federal funds through an MCO tax will help make major investments in Medi-Cal to improve access. If invested smartly, these resources have the potential to tangibly improve the patient experience for the one-third of Californians who utilize Medi-Cal for their health care, and also to bolster a key pillar of the health care system we all rely on,” said Anthony Wright, executive director of Health Access California.

Additional Background:

KHN: California Governor and Democratic Lawmakers at Odds Over Billions in Health Care Funds (May 30, 2023)
CalMatters: Newsom breaks deal to lower price of Covered California. Lawmakers move to hold him to it (May 4, 2023)
KHN: California Stockpiles Penalties from Uninsured Residents Instead of Lowering Care Costs (November 10, 2022)