California’s Proposition 52: State Fees on Hospitals. Federal Medi-Cal Matching Funds.

There should be legislative scrutiny of the use of all public funds, including for health care.

Voter Guide: 2016 California Ballot Initiatives

Prop 52 would make permanent a means of acquiring federal Medi-Cal funding charging hospitals a fee, and then returning the fee money to them along with the matching federal funds. It would also raise the requirement to a 2/3 vote of the legislature to change fee rates or to turn away federal matching dollars and instead use the hospital fees for other budget purposes.

Fiscal Impact:

The fiscal effect of this measure is uncertain primarily because it is not known whether the legislature would have extended the hospital fee absent the measure. If the legislature would have extended the hospital fee absent this measure, the measure would likely have relatively little fiscal effect on the state and local governments. If the legislature would not have extended the hospital fee absent the measure, the measure could result in state General Fund savings of around $1 billion annually and increased funding for public hospitals in the low hundreds of millions of dollars annually

Proponents’ Arguments For:

Proponents of Prop 52 argue that the tax on hospitals has been effective for years. The tax revenues are used to get approximately $3 billion per year in matching federal dollars for state Medi-Cal programs that provide vital medical services for millions of Californians.

They argue that each time the legislature has renewed the tax, there have been attempts to divert the funds to other state budget areas and thus lose the federal matching funds and cut Medi-Cal funding overall. Prop 52 makes the tax permanent so the legislature would not have to renew it again, and prohibits using the tax revenues for other budget purposes or changing the tax levels without consent by popular vote or 2/3 of the legislature.

Opponents’ Arguments Against:

Opponents of Prop 52 argue that its tax revenues and the $3 billion in matching federal dollars are simply given to hospitals with no oversight or even requirement that it is spent providing health care services. Hence a lot of the money simply goes to high pay and perks for hospital CEOs. They argue that making the tax permanent and requiring the state to give it back to hospitals with the matching federal dollars is exactly what the hospitals and their lobbyists want because it removes the legislature from any oversight of how the money is used. As a consequence few of those dollars will go to helping poor people but instead will go to hospital owners and administration.


From the perspective of Medi-Cal funding, the practice of imposing a tax on hospitals and using those funds to provide a dedicated source of revenue to leverage matching federal dollars makes basic fiscal accounting sense. But the devil is in the details.

Given the California Legislature’s addiction to spending, it is no surprise that once the tax on hospitals is in place, they are constantly tempted to redirect that money to other budget areas that match legislators’ current priorities. When that happens hospitals make up the difference by charging the patients more. If the legislature actually valued and prioritized funding health care services, there would be sufficient funding in the budget to leverage the matching federal dollars with no need for a special tax.

At the same time, the overwhelming majority of hospitals are supporting Prop 52 not because they love having to pay a special tax, but because it better ensures they get the extra $3 billion in matching federal funds each year—with no legislative oversight of how the money is spent.

The fact is, we have nothing remotely resembling a free market in health care. A great deal of the funding is controlled by government, insurance is heavily controlled by government now, and many hospitals are government-owned and operated. Given that, this mechanism for leveraging federal funds does not make the system any worse, nor does it make it any better.

There should be legislative scrutiny of the use of all public funds, including for health care. That Prop 52 fails to add any accountability to replace the legislative oversight it takes away is problematic. Not that legislative oversight is very effective in California—failure to accomplish the goals of state funding almost never results in the loss of state funding. The issue of accountability for how hospitals use Medi-Cal funding is much bigger than Prop 52 and should be resolved comprehensively.

Voter Guide: 2016 California Ballot Initiatives