Eliminate Prop 56 Supplemental Payments

This proposal seeks to end supplemental payments made to healthcare providers under Proposition 56, which was approved by California voters in 2016 to increase the tobacco tax by two dollars per pack. The aim is to streamline the healthcare budget and redirect funds toward primary care services within the Medi-Cal system, which currently serves approximately 15 million enrollees statewide. Proposition 56 revenue, which generates roughly $1.3 billion annually, currently funds supplemental payments to physicians, dentists, and other providers who treat Medi-Cal patients, with the goal of increasing provider participation in the program. Proponents of eliminating these payments argue that the supplemental rate increases have not meaningfully improved access to care, pointing to data showing that only 40 percent of primary care physicians in California accept new Medi-Cal patients. They contend that the funds would be more effectively deployed through direct investment in community health centers, which serve as the primary care home for a disproportionate share of Medi-Cal enrollees in rural and underserved areas. The California Medical Association strongly opposes the proposal, arguing that eliminating the supplemental payments would reduce physician reimbursement rates to levels well below the cost of providing care, potentially driving more providers out of the Medi-Cal program entirely. The California Dental Association has also expressed opposition, noting that Prop 56 funds restored adult dental benefits that had been cut during the 2008 recession and that eliminating the payments could once again leave millions of low-income adults without dental coverage. Under the proposal, the redirected funds would be allocated through a competitive grant process administered by the Department of Health Care Services, with priority given to projects that expand access in health professional shortage areas. Fiscal analysts in the Legislative Analyst’s Office have noted that the proposal raises complex legal questions about whether the legislature can redirect voter-approved tax revenue to different purposes without returning to the ballot. The proposal also includes provisions to phase out the supplemental payments over three years rather than eliminating them immediately, giving providers time to adjust their financial planning. Healthcare labor unions including SEIU California have taken a cautious position, supporting the goal of expanded primary care investment but expressing concern that the transition period may not be sufficient to prevent service disruptions. If implemented, the Department of Health Care Services would be required to publish annual reports measuring changes in provider participation rates and patient access metrics during and after the phase-out period.