Affordable health care is essential for everyone to be healthy and thrive. Having health insurance coverage helps lower out-of-pocket expenses and ensures access to preventive care, which in turn supports workforce participation and education. While California has made great strides in lowering the uninsured rate and expanding health care access, policymakers can take further action to protect progress and achieve universal health care coverage.
1. Medi-Cal Covers Over a Third of the State’s Population
Medi-Cal, California’s Medicaid program, provides free or low-cost health care to over one-third of the state’s population. The program covers a wide range of services to Californians with modest incomes, and many children, seniors, people with disabilities, and pregnant individuals rely on it. Medi-Cal plays a crucial role in promoting health equity, with about half of its beneficiaries being Latinx Californians, who often face low-wage employment and limited access to employer-sponsored health plans. For those who earn too much to qualify for Medi-Cal, Covered California — the state’s health insurance marketplace established through the Affordable Care Act — serves as a vital resource, helping individuals and families find affordable health coverage. Nearly 1.8 million Californians purchase their insurance through this state marketplace.
2. California’s Uninsured Rate Reached a Historic Low in 2023
California has made substantial progress in expanding access to health coverage over the past decade. Key drivers of this success include the federal Affordable Care Act and more recent state initiatives, such as expanding full-scope Medi-Cal to income-eligible Californians who are undocumented. As a result, the uninsured rate dropped to 6.4% in 2023, matching the record low of 6.4% in 2022. These gains reflect a major shift from a decade ago when over 17% of Californians lacked health coverage, underscoring the state's commitment to improving health care access for all.
3. American Indian or Alaska Native Californians Have the Highest Uninsured Rate
Despite California’s overall progress in expanding health coverage, significant racial disparities persist. American Indian or Alaska Native Californians face the highest uninsured rate among all racial and ethnic groups in the state. The racial disparities in health coverage highlight the profound and enduring impact of racism, which blocks Californians of color from equal access to health care. Addressing the racial disparities in health coverage requires targeted outreach and education efforts along with other antiracist policy actions to improve health and well-being for Californians of color.
4. Too Many Californians Lost Medi-Cal Coverage Due to Paperwork Challenges
When California resumed Medi-Cal renewals in 2023, after pausing them during the pandemic, many Californians were disenrolled from Medi-Cal. This process, known as the "unwinding period," marked the end of the federal policy that temporarily paused routine renewals.1A provision in the federal Families First Coronavirus Response Act passed in March 2020 required states to provide continuous coverage for Medicaid beneficiaries in exchange for enhanced federal funding during the federally declared Public Health Emergency (PHE). The Consolidated Appropriations Act of 2023, which federal policymakers passed in December 2022, delinked the continuous coverage provision from the PHE, thereby ending this provision on March 31, 2023. Over 1.8 million Californians lost Medi-Cal coverage from June 2023 to July 2024.2The California Department of Health Care Services publishes interactive dashboards detailing statewide and county-level demographic data on Medi-Cal application processing, enrollments, redeterminations, and renewal outcomes. The majority of disenrollments (85.2%) were due to challenges with the renewal paperwork. Completing the renewal process often involves complex paperwork and documentation requirements, which can be challenging to navigate. Additionally, many Californians have experienced extended call wait times when attempting to contact county Medi-Cal workers regarding their application. The high disenrollment rate underscores the need to further streamline the renewal process as well as permanently enact policies that build upon lessons learned during the pandemic.
5. Many Californians Could Lose Health Coverage if Premium Tax Credits Expire
Enhanced premium tax credits from recent federal policy actions have significantly improved health care affordability for many Covered California enrollees. However, these credits are set to expire at the end of 2025, which would lead to steep increases in monthly premiums. About 2.4 million Californians in the individual market would face higher health insurance premiums if Congress does not extend the expanded federal subsidies, according to the UC Berkeley Labor Center. The loss of these tax credits means that average premiums could rise by 63% for Covered California enrollees, and communities of color will be disproportionately impacted. Premiums will increase by 76% for Latinx enrollees, 67% for Black enrollees, and 71% for Asian enrollees, compared to a 57% increase for white enrollees. Overall, without these federal subsidies, an estimated 138,000 to 183,000 Covered California enrollees would disenroll.
Looking Ahead, Policymakers Can Take Action to Strengthen Health Coverage
While California has made substantial progress, challenges remain in ensuring health coverage for everyone. By addressing gaps in coverage, particularly for historically underserved communities, state leaders can continue leading the nation in advancing health equity and improving well-being for all Californians.
State leaders extended flexibilities through December 2024 to increase automatic Medi-Cal renewals and reduce coverage disruptions. The federal government recently allowed states to extend these flexibilities until June 2025, but California has yet to commit to that extension. To further protect Medi-Cal coverage for Californians, the state should extend these flexibilities through June 2025, and then take every effort to make them permanent.
Implement continuous Medi-Cal coverage for children from birth to age five.
The 2024-25 budget agreement included language to allow children to keep their Medi-Cal coverage without any administrative renewal or disruptions from birth to age five. However, funding for this policy was contingent on Proposition 35 (2024) not passing. Since Prop. 35 has passed, implementing this policy now depends on future funding.
Provide continuous Medi-Cal coverage to adults.
Extending continuous coverage for adults would promote consistent health care access, reduce administrative burdens, and increase economic stability for Californians.
Reform the Medi-Cal Share of Cost program.
Raising the maintenance need level to 138% of the Federal Poverty Level (FPL) would make Medi-Cal health coverage more accessible for many seniors and people with disabilities who currently face unaffordable monthly Shares of Cost, which work like monthly deductibles. They are forced to make difficult choices between paying for health care, rent, food, or other basic needs. While policymakers passed the Share of Cost reform in the 2022 Budget Act, its implementation depends on future funding.
Expand outreach and enrollment efforts.
Policymakers should invest in targeted outreach and education initiatives by community-based organizations, particularly in areas with high uninsured rates, to connect eligible individuals with health coverage.
Remove barriers to Covered California based on immigration status.
Undocumented Californians who are not income-eligible for Medi-Cal are unjustly excluded from accessing and purchasing health care coverage plans through Covered California.
Extend premium tax credits.
Congress should act to preserve enhanced premium tax credits, which are essential for maintaining affordability in the health insurance marketplace.
Continue and expand cost-sharing reductions in Covered California.
State policymakers should maintain and enhance investments in cost-sharing reductions to make health coverage through Covered California even more affordable.
A provision in the federal Families First Coronavirus Response Act passed in March 2020 required states to provide continuous coverage for Medicaid beneficiaries in exchange for enhanced federal funding during the federally declared Public Health Emergency (PHE). The Consolidated Appropriations Act of 2023, which federal policymakers passed in December 2022, delinked the continuous coverage provision from the PHE, thereby ending this provision on March 31, 2023.
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The California Department of Health Care Services publishes interactive dashboards detailing statewide and county-level demographic data on Medi-Cal application processing, enrollments, redeterminations, and renewal outcomes.
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key takeaway
California’s undocumented residents contribute nearly $8.5 billion in taxes, playing a crucial role in supporting public services while remaining excluded from essential programs.
All Californians should be able to live thriving lives and participate in their communities, regardless of their race, ethnicity, age, gender identity, sexual orientation, ability, or immigration status.
California is home to a sizable population of immigrants — with and without legal status — who are students, teachers, artists, chefs, business owners, religious leaders, colleagues, neighbors, family members, and more. Undocumented Californians pay billions of dollars in taxes and play a vital role in stimulating California’s economy. They help keep businesses running, put food on tables, care for children and loved ones, enrich communities through art and music, and much more.
Tax Contributions by Undocumented Californians
One contribution that is often overlooked or underestimated is the amount of taxes that individuals who are undocumented are paying into publicly-funded systems to support public services, even as they are excluded from benefiting from many of those same services.
Undocumented Californians paid nearly $8.5 billion in state and local taxes in 2022, according to estimates from the Institute on Taxation and Economic Policy (ITEP). This includes the sales and excise taxes paid on purchases, the property taxes paid on homes or indirectly through rents, individual and business income taxes, unemployment taxes, and other types of taxes.
These tax contributions support the public services and infrastructure that benefit all Californians, such as education, roads and transit, emergency response, and the social safety net. However, despite recent progress in making some public supports more inclusive of Californians regardless of their immigration status, many programs continue to unjustly exclude undocumented individuals and families who pay into these systems and seek support in times of need.
California has taken steps in recent years that recognize the importance of supporting everyone regardless of status, including:
Expanding full-scope Medi-Cal health coverage to all eligible Californians regardless of immigration status. We are already seeing signs of benefits from making Medi-Cal more inclusive: After full-scope Medi-Cal was expanded to undocumented children, the share of non-citizen children reporting excellent health status increased by 10 percentage points while no changes were seen for citizen children not impacted by the expansion.
Taking the first steps to provide access to nutrition benefits through the California Food Assistance Program (CFAP) for undocumented adults age 55 and older, who are excluded from receiving federally funded Supplemental Nutrition Assistance Program (CalFresh in California) benefits. However, the 2024-25 state budget delayed the implementation of this expansion until 2027.
Despite this progress, Californians without documentation remain excluded from many critical supports, jeopardizing their health and economic security. While many of these exclusions stem from federal law, state leaders can further support these Californians by using state resources to end the exclusions. State policymakers should:
Ensure undocumented workers have access to unemployment support when they lose a job by funding cash assistance for workers excluded from traditional unemployment insurance benefits. The Legislature recently passed a bill to require the Employment Development Department to develop a plan to establish an Excluded Workers Program, but the governor vetoed the bill citing concerns about the cost and the deadline set in the bill.
Address food insecurity in undocumented communities by expanding CFAP nutrition benefits to undocumented Californians of all ages.
Build on the success of ending Medi-Cal exclusions by expanding access to health coverage through Covered California to undocumented families whose income make them ineligible for Medi-Cal.
Expand the Cash Assistance Program for Immigrants (CAPI) to undocumented older adults and people with disabilities whose immigration status disqualifies them from receiving Supplemental Security Income/State Supplementary Payment (SSI/SSP).
Increase funding for free tax preparation services to enable more undocumented Californians to apply for and renew ITINs and file income returns — allowing them to pay the taxes they owe and receive the tax credits they are eligible for.
Exclusions from these vital services are one contributor to the higher rate of poverty among undocumented Californians. This results in unnecessary human suffering and additional strains on community services that people use as a last resort, such as emergency rooms.
Federal action is also needed, including ending unjust exclusions from federal safety net and financial assistance programs and providing an accessible path to citizenship for those who have been living, working, and contributing to their communities. Granting legal status to these individuals would provide them with greater economic security and stability, and allow them to make even more meaningful contributions to the state.
Furthermore, by allowing all workers to pursue legal employment, granting legal status could increase the state and local tax contributions of Californians currently lacking documentation from $8.5 billion to $10.3 billion, according to ITEP estimates. This would deepen their already significant contributions to California’s economy and public support programs.
Regardless of the prospects for federal action, California leaders have the tools to continue making the state’s services inclusive of all its residents and ensuring that no one is left out of critical safety net programs.
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key takeaway
California’s expansion of Medi-Cal to include all eligible residents, regardless of immigration status, has improved health outcomes for non-citizen children. However, gaps remain for undocumented adults who lack coverage, highlighting the need for continued efforts to promote health equity and economic stability for all Californians.
Immigrants are an integral part of California’s communities and the state’s social fabric. Over the years, California has set itself apart from other states by advancing inclusive policies that support immigrants while fostering economic growth. A key example is the state’s efforts to make coverage through Medi-Cal, California’s state Medicaid program, more accessible for immigrants. This year, California became the first state in the nation to expand comprehensive Medi-Cal coverage to all eligible Californians, regardless of immigration status. The timeline below shows the steps that state leaders have taken to end the unjust exclusions in Medi-Cal.
A look at reported health status shows promising signs that Medi-Cal expansion to undocumented Californians is positively impacting health.1Our analysis focuses on the Medi-Cal expansion to undocumented children. Data for the most recent Medi-Cal expansion are not yet available for analysis. Analysis for the 2020 expansion to young adults is excluded due to potential confounding effects stemming from the COVID-19 pandemic. Data show that the proportion of non-citizen children who reported being in excellent health after the expansion increased by 10 percentage points from 20% to 30%. In contrast, citizen children, who were not affected, did not experience any change in their reported health status. At a high level, this analysis suggests there is a link between access and improved health status.
While California has led the nation in closing health coverage gaps, access is still limited for undocumented Californians who do not qualify for Medi-Cal or lack employer-based health insurance. The percentage of uninsured Californians hit a record low in 2022 at 6.5%, but the gains are not distributed equally. Research suggests that over one in four undocumented immigrants under 64 will remain uninsured due to their exclusion from Covered California.
Ensuring that everyone has access to health care benefits all Californians, as health coverage is critical for preventing poverty and fostering economic stability. People without coverage are more likely to face high health care costs or medical debt and are less likely to receive preventive care or treatment for chronic health conditions.
Policymakers can continue to advance health equity by ending unjust exclusions in Covered California, our state’s health insurance marketplace. By building on the historic Medi-Cal expansions and investing in other equitable health policies, policymakers can ensure all Californians can be healthy and thrive.
Our analysis focuses on the Medi-Cal expansion to undocumented children. Data for the most recent Medi-Cal expansion are not yet available for analysis. Analysis for the 2020 expansion to young adults is excluded due to potential confounding effects stemming from the COVID-19 pandemic.
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Prop. 1, passed in March 2024, aims to strengthen California’s behavioral health system by funding mental health treatment, substance use disorder services, and supportive housing for veterans and individuals facing homelessness. Ensuring equitable access to these essential services is critical as the state works to address both housing insecurity and behavioral health needs across diverse populations.
Millions of Californians, including many facing housing insecurity, rely on county-provided services to address mental health conditions and substance use disorders. Strengthening the state’s behavioral health system is essential to guaranteeing that every Californian — regardless of race, age, gender identity, sexual orientation, or where they live — can access the care they need.
In March 2024, California voters narrowly passed Proposition 1 on the promise to improve the state’s behavioral health system and provide the housing support needed to successfully maintain mental health and substance use disorder services for all Californians.
Prop. 1 was a two-part measure that 1) amended California’s Mental Health Services Act and 2) created a $6.38 billion general obligation bond. The bond will fund behavioral health treatment and residential facilities, and supportive housing for veterans and individuals at risk of or experiencing homelessness with behavioral health challenges.
As the transformation of California’s county-based behavioral health system brings both benefits and potential challenges for Californians, this Q&A highlights key developments of Prop. 1 since its passage and addresses important questions and considerations that remain.
A treatable mental disorder that affects a person’s brain and behavior, leading to their inability to control their use of substances like drugs, alcohol, or medications. Symptoms can be moderate to severe, with addiction being the most severe form.
What does Prop. 1 do?
Prop. 1 significantly amended the Mental Health Services Act (MHSA), a law that California voters passed in 2004 that created a millionaire’s tax to provide increased funding for mental health services. Revenue from this tax is crucial to California’s behavioral health system as it accounts for nearly one-third of county behavioral health services funding. Prop. 1 renamed the law the Behavioral Health Services Act (BHSA) and made other changes, including:
Expanding its scope to encompass treatment for substance use disorders.
Modifying how revenue from the millionaire’s tax is allocated for behavioral health services.
Changing the requirements for counties’ three-year program and expenditure plan for behavioral health services and outcomes.
Revising accountability and transparency requirements for counties.
Prop. 1 additionally established a $6.38 billion behavioral health infrastructure bond. Roughly $4.4 billion is dedicated to the infrastructure development of treatment and residential care facilities. The remaining $2 billion is reserved for permanent supportive housing units specifically for veterans and other Californians with serious mental health conditions or substance use disorders.
This initiative was designed to create targeted funding for mental health services and housing or treatment units for people with behavioral health conditions who are experiencing or at risk of homelessness. As such, these reforms will only serve a subset of Californians, as they do not cover everyone at risk of homelessness or all individuals with behavioral health conditions.
What do we know about the behavioral health infrastructure bond?
Major developments regarding Prop. 1 have primarily related to the Behavioral Health Infrastructure Bond Act (BHIBA). BHIBA created a $6.38 billion general obligation bond to fund the infrastructure development of treatment and residential sites as well as supportive housing. There are two programs funded by the bond which are overseen by different state departments:
Behavioral Health Continuum Infrastructure Program (BHCIP) administered by the Department of Health Care Services.
BHCIP is an existing program that previously received state investments. Under this funding, projects are only eligible if they expand or create new behavioral health infrastructure. It encompasses the construction, renovation, or expansion of treatment and residential care facilities and other facility types. BHCIP is receiving $4.4 billion from the BHIBA, with $3.3 billion available for the first round of applications DHCS is accepting through the end of the year. Counties, cities, tribal entities, nonprofit organizations, and for-profit organizations are eligible to apply. Applications close in December, with the first round of funding awards anticipated in May 2025.
Homekey Plus (Homekey+) administered by the Department of Housing and Community Development in partnership with the Department of Veteran Affairs.
Homekey+ builds on the existing Homekey Program which supported the acquisition and rehabilitation of property for permanent supportive housing. These funds also support the new construction of multifamily rentals, master leasing, and shared housing. It will not award interim housing projects. The units will target Californians who are at risk or experiencing homelessness with behavioral health challenges and extremely low incomes. Applications are set to open November 2024 with continuous award announcements beginning in May 2025.
HCD is aggregating two main funding sources for Homekey+ for a total of $2.25 billion for the upcoming November application cycle:
$1.98 billion from Prop. 1 bond funding, with $1.065 billion designated for veterans and $922 million for other people experiencing or at risk of homelessness.
$323 million Homeless Housing, Assistance, and Prevention Program (HHAP) Homekey Supplemental funding appropriated in the 2023 and 2024 Budget Acts.
Homekey+ projects are required to demonstrate a funding match of at least 3 years for operating costs. For long-term sustainability, HCD is encouraging counties to pair the restructured BHSA housing intervention dollars and other funding sources for behavioral health treatment to provide long-term service and operating costs for Homekey+ projects. However, Homekey+ projects will be awarded before counties are required to have their new three-year BHSA expenditure plans approved, which may create budgeting challenges.
How are counties allocating Behavioral Health Services Act (BHSA) funds under Prop. 1?
Prop. 1 significantly reforms the allocation of MHSA (now BHSA) dollars to prioritize Californians who are most affected by severe behavioral health conditions (mental illness and substance use disorders) and homelessness.1SB 326 created the legislative language for the BHSA.
Under Prop. 1, counties continue to receive the bulk of BHSA funds (90%). However, the allocation across different spending categories would change. Counties would allocate their BHSA funds as follows:
These dollars would support individuals with behavioral health conditions (i.e., serious mental illness and/or a substance use disorder). Counties can use these funds to cover rental subsidies, operating subsidies, family housing, and shared housing. Half of this funding is dedicated to housing interventions for those experiencing chronic homelessness and up to 25% may be used for capital development.
35% for Full Service Partnership programs.
This is a “Whatever It Takes” approach to supporting individuals with complex needs. It encompasses recovery-oriented, comprehensive services for individuals who are or at risk of experiencing homelessness and have a serious mental illness, and who often have a history of criminal justice involvement and repeat hospitalizations. These services are designed to serve people in the community rather than in locked state hospitals.
35% for behavioral health services and supports.
This allocation would support workforce education and training, innovation, early intervention, and capital facilities. A minimum of 51% of these dollars must be directed towards early intervention supports for Californians who are 25 years and younger.
Prop. 1 shifts a small percentage of dollars from counties to the state (from about 5% of total MHSA funding to about 10%). This would result in about $140 million annually redirected to the state budget. However, this amount could be higher or lower depending on the total amount of revenue collected from the tax.
Prop. 1 also revised the allocation of state-level funds:
At least 3% to the Department of Health Care Access and Information to implement a statewide behavioral health workforce initiative.
At least 4% to the California Department of Public Health for population-based mental health and substance use disorder prevention programs. A minimum of 51% of these funds must be used for programs serving Californians who are age 25 years or younger.
What are the new county reporting requirements under Prop. 1?
Prop. 1 changes the way counties plan and report behavioral health funding.
Starting in 2025, counties will need to develop integrated county plans for the 2026-29 fiscal years. The steps for developing plans are similar to how counties developed plans under the MHSA — counties will still gather community input and receive approval from County Boards of Supervisors. However, a key change is that counties will now report on all behavioral health funding, not just BHSA dollars. This includes local, state, and federal funding sources such as opioid settlement funds, SAMHSA and PATH grants, realignment funding, and federal financial participation.
Counties will also be required to report on unspent funds, service utilization data, outcomes with a focus on health equity, workforce metrics, and other information. The Department of Health Care Services (DHCS) has the authority to impose corrective action plans on counties that fail to meet these requirements. Additionally, the State Auditor will release a report on the implementation of the BHSA by December 31, 2029, with follow-up reports every three years thereafter.
What do we know about implementation timelines?
Since the passage of Prop. 1 in March, various developments regarding both the behavioral health infrastructure bond and county guidance for BHSA reforms have surfaced.
Behavioral Health Infrastructure Bond
Treatment and Residential Sites — BHCIP
In July, the Department of Health Care Services (DHCS) released an expedited timeline to roll out $3.3 billion for the construction, renovation, or expansion of treatment and residential care facilities through the existing Behavioral Health Continuum Infrastructure Program (BHCIP). Round 1 applications for “launch ready” projects are currently being accepted through mid-December 2024. DHCS is prioritizing applicants working in regional models or collaborative partnerships focused on expanding residential treatment facilities. Awards for Round 1 are anticipated to be announced in May 2025 and Round 2 “unmet needs” project applications will be opened in the same timeframe for the remaining $1.1 billion bond funds.
Permanent Supportive Housing — Homekey+
The Department of Housing and Community Development (HCD), in conjunction with the Department of Veteran Affairs (CalVet), engaged with stakeholders on the roll out of the Homekey Plus (Homekey+) program. Homekey+ is expanding on the Homekey Program which funded the acquisition and conversion of property for permanent supportive housing during and after the COVID-19 pandemic. It is receiving roughly $2 billion in bond funds to develop supportive housing for people with behavioral health conditions, with $1.065 billion designated for veterans and $922 million for other people experiencing or at risk of homelessness. HCD was collecting stakeholder input through the end of September. Applications will open November 2024 with continuous award announcements beginning in May 2025.
Behavioral Health Services Act Reform
Since the passage of Prop. 1 in March 2024, the California Health and Human Services Agency (CalHHS) and the State Department of Health Care Services (DHCS) have held public listening sessions to share Prop. 1 implementation updates and collect feedback from counties and other interested groups.
DHCS, in coordination with other agencies and departments, is currently in the midst of stakeholder engagement to inform new county expenditure plans and reporting requirements under the BHSA.2Other departments and agencies include: CalHHS, the California Behavioral Health Planning Council, and the Behavioral Health Services Oversight and Accountability Commission. CalHHS plans to share full guidance to counties in early 2025.
In addition, Prop. 1 created a Behavioral Health Services Act Revenue and Stability Workgroup, which has held two meetings. This group is charged with developing and recommending solutions to reduce BHSA revenue volatility and to propose appropriate prudent reserve levels to support the sustainability of county programs and services.
To support Prop. 1 implementation, the Department of Health Care Access and Information (HCAI) is taking steps to improve the behavioral health workforce. HCAI recently presented its strategy on how to grow and diversify the behavioral health workforce to the California Health Workforce Education and Training Council, and will provide additional updates in November 2024. The behavioral health workforce shortage in California is a major obstacle to addressing the growing need for mental health and substance use disorder services.
What don’t we know about Prop. 1 implementation?
There are several critical questions and considerations surrounding the BHSA reforms and behavioral health bond funds that are yet to be addressed. As key Prop. 1 players continue to engage with stakeholders, roll out program details, and prepare to release additional county guidance in early 2025, the following fundamental questions are essential to understanding how these reforms will impact Californians and current behavioral health and housing systems. Key questions include:
How will Prop. 1 BHSA spending and infrastructure projects interact or complement other behavioral health and housing initiatives California is spearheading?
How will these reforms ensure the longevity and health of California’s behavioral health and supportive housing systems? For instance, how will they align with programs such as:
Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) Demonstration: An initiative to expand the continuum of community-based behavioral health care services for Medi-Cal members living with significant behavioral health needs.
California Advancing and Innovating Medi-Cal (CalAIM): A multi-year initiative led by DHCS to transform Medi-Cal. The primary goal is to enhance care coordination, improve health outcomes, and address social determinants of health for Medi-Cal enrollees, particularly for those facing complex challenges such as homelessness, chronic medical conditions, and involvement in the justice system.
Children and Youth Behavioral Health Initiative (CYBHI): A multiyear, multi-department package of investments that seeks to reimagine the systems, regardless of payer, that support behavioral health for all of California’s children, youth, and their families.
Community Assistance, Recovery, and Empowerment (CARE) Court: A plan to establish court-ordered treatment for people experiencing both homelessness and serious behavioral health challenges.
Homeless Housing Assistance and Prevention Program (HHAP): Local flexible funding to address homelessness that has solely received one-time state funding allocations.
How will the new Prop. 1 funding requirements impact funding for prevention and early intervention services?
What are the various efforts to mitigate the impact of decreasing BHSA funds for early identification and prevention of mental health conditions?
Will DHCS allow additional BHSA flexibilities and exemptions to counties?
DHCS has stated that counties will have the flexibility to move up to 7% from one BHSA funding category into another, which would allow counties to address local needs and priorities. However, changes are subject to DHCS approval, and it’s unclear what justifications may be used to move funding between categories.
What steps will be taken to standardize and streamline the integration of health and homelessness systems to ensure continuous services?
Are local homeless service providers, Continuums of Care, nonprofit housing providers, people with lived experience, and other housing parties involved to provide alignment in creating cohesive systems?
Will Prop. 1 reforms meet the scale of the need to serve Californians experiencing homelessness with behavioral health conditions?
Beyond the steps taken by Prop. 1, policymakers need further investments to ensure housing stability for Californians with behavioral health conditions.
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 chcf.org to learn more.
SB 326 created the legislative language for the BHSA.
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Other departments and agencies include: CalHHS, the California Behavioral Health Planning Council, and the Behavioral Health Services Oversight and Accountability Commission.
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SACRAMENTO, CA — Today, the California Budget & Policy Center (Budget Center) released a new report, in partnership with the National Employment Law Project (NELP), highlighting the urgent need to address the inadequacies in California’s unemployment insurance (UI) system, a critical support tool for California workers and the economy. The report reveals that while UI … Continued
California’s Unemployment Insurance (UI) system is severely underfunded and outdated, leaving workers with inadequate benefits and excluding millions. To revitalize UI and ensure it supports both workers and the economy, the state must raise the taxable wage base and reform its financing structure to eliminate the $19.8 billion debt and stabilize the system for future economic downturns.
When Californians are out of work, unemployment insurance (UI) should help them make the rent, put food on the table, and cover other basic needs until they can find a new job. During the worst days of the pandemic, millions of jobless workers across the state relied on UI benefits to make ends meet, supporting both their families and California’s economy until it could thrive again. UI is also critical for jobless workers during periods of economic growth: In May 2024, 379,955 California workers — laid off from industries including manufacturing and information — counted on UI as they sought new employment.1Employment Development Department, California Employers Gained 43,700 Nonfarm Payroll Jobs in May 2024, accessed June 21, 2024, https://edd.ca.gov/en/about_edd/news_releases_and_announcements/unemployment-may-2024/.
Yet without the federal supplements that were available during the pandemic downturn, California workers received an average UI benefit of just $368.53 a week in 2023, less than the income needed to afford fair market rent in any county in the state.2Average benefit amount based on US Department of Labor Employment and Training Administration, Unemployment Insurance Data,https://oui.doleta.gov/unemploy/data_summary/DataSum.asp; housing affordability based on National Low Income Housing Coalition, Out of Reach: The High Cost of Housing, 2023, https://nlihc.org/sites/default/files/oor/California_2023_OOR.pdf using an affordability standard of 30% of income for rent. At the same time, millions of California workers, including more than a million immigrant workers, are excluded from accessing unemployment insurance entirely.3Legislative Analyst’s Office, Extending Unemployment Insurance to Cover Excluded Workers, (March 28, 2023), https://lao.ca.gov/handouts/state_admin/2023/Unemployment-Insurance-032823.pdf.
To strengthen and expand UI to adequately support workers and the economy, California must address the severe and chronic underfunding of the UI trust fund, which has created a structural deficit and $19.8 billion in debt for the state’s UI system. The underlying problem is California’s deficient UI financing: For decades policymakers have not required businesses to cover the true cost of the unemployment benefits their workers need. Instead, the state taxes employers on only the first $7,000 of each employee’s pay, a dramatically lower wage base than most other states.
This report details how workers, employers, and the economy as a whole are paying a steep price for California’s inadequate UI financing system. It explores how both raising the taxable wage base and changing the state’s experience rating system will be necessary to strengthen and stabilize UI to better serve workers, employers, and the economy.
Unemployment Insurance is a Lifeline for California, But Low Benefits and Exclusions Undermine Its Effectiveness
The joint federal-state UI system was established in the wake of the Great Depression to protect workers and their families against the loss of employment income, to bolster the economy during economic downturns by supporting consumer demand, and to ensure jobseekers are not forced into substandard jobs that could broadly depress wages and degrade working conditions.
Today, economists recognize that UI also plays an important role in improving job matches, enhancing the overall functioning of the labor market, and helping employers match with workers who have the right skills, improving their efficiency.4Ammar Farooq, Adriana D. Kugler, and Umberto Muratori, “Do Unemployment Insurance Benefits Improve Match Quality? Evidence From Recent US Recessions,” National Bureau of Economic Research (2020), https://www.nber.org/system/files/working_papers/w27574/revisions/w27574.rev0.pdf. By giving workers time to match with more suitable jobs, UI also contributes to higher wages and greater job satisfaction when they find new work.5Nick Gwyn, State Cuts Continue to Unravel Basic Support for Unemployed Workers (Center on Budget and Policy Priorities, June 27, 2022), https://www.cbpp.org/research/state-budget-and-tax/state-cuts-continue-to-unravel-basic-support-for-unemployed-workers; Adriana D. Kugler, Umberto Muratori, and Ammar Farooq, The Impacts of Unemployment Benefits on Job Match Quality and Labour Market Functioning (Centre for Economic Policy Research, February 7, 2021), https://cepr.org/voxeu/columns/impacts-unemployment-benefits-job-match-quality-and-labour-market-functioning. Yet UI’s ability to fulfill any of these functions is weakened by California policymakers’ failure to raise the state’s low benefit levels or to include the significant numbers of workers who are locked out of the system entirely.
Unemployment benefits remain critical to workers who receive them. In 2022, UI prevented more than 400,000 people nationwide, including 116,000 children, from experiencing poverty.6Amy Traub, Unemployment Insurance Had Less Capacity to Cut Poverty in 2022 (National Employment Law Project, 2023), https://www.nelp.org/insights-research/unemployment-insurance-had-less-capacity-to-cut-poverty-in-2022/. Even for workers not facing poverty, receiving unemployment benefits reduces hardship and broadly improves the well-being of households, including recipients’ financial stability and mental health.7Patrick Carey, et al., “Applying for and Receiving Unemployment Insurance Benefits During the Coronavirus Pandemic,” Monthly Labor Review, US Bureau of Labor Statistics, September 2021, https://doi.org/10.21916/mlr.2021.19.
Yet benefits in California have not been raised in nearly two decades. With an average benefit of just $368.53 a week in 20238US Department of Labor, Employment and Training Administration, Unemployment Insurance Data,https://oui.doleta.gov/unemploy/data_summary/DataSum.asp., UI benefits no longer provide enough money for Californians — particularly those with low incomes — to meet the rising cost of living while seeking employment. As the California Budget & Policy Center pointed out earlier this year, a worker who loses a full-time minimum wage job (at $16.90-per-hour in Los Angeles County) receives just $1,465 in monthly unemployment benefits, which falls $69 short of covering rent for a studio in Los Angeles priced at Fair Market Rent.9Alissa Anderson and Hannah Orbach-Mandel, California Should Increase Unemployment Benefits to Help Workers Meet Basic Needs (California Budget & Policy Center, January 2024), https://calbudgetcenter.org/resources/california-should-increase-unemployment-benefits-to-help-workers-meet-basic-needs/ California’s UI benefits are significantly lower than other Western states, including Washington ($703.79 per week on average), Oregon ($543.81 per week), Nevada ($450.70 per week), and Hawaii ($613.30 per week), as shown in the figure below. California’s low benefits are even more striking considering the state’s higher cost of living.
At just $40 per week, California’s minimum UI benefit — the payment provided to workers who earned the lowest wages before becoming unemployed — is also among the nation’s lowest, falling below the minimum benefits provided by 29 other states. For example, Washington’s minimum benefit is seven times greater than California’s ($295 per week), while Arizona’s minimum benefit is $200 per week, and Oregon’s is $171. In addition, 12 states offer dependent allowances, providing a weekly supplement to UI benefits so that workers with children and other dependents have an additional resource to make ends meet. Despite its low average and minimum benefits, California offers no additional support to unemployed parents and other workers supporting dependents.
Low Unemployment Insurance Benefits Exacerbate Racial and Gender Inequities
Low UI benefits can be especially harmful for workers of color, including American Indian, Black, Latinx, and Pacific Islander Californians — particularly women — who are overrepresented in low-paying jobs due to structural racism and sexism.10Jasmine Tucker and Julie Vogtman, When Hard Work Is Not Enough: Women in Low-Paid Jobs (National Women’s Law Center, April 2020), https://nwlc.org/wp-content/uploads/2020/04/Women-in-Low-Paid-Jobs-report_pp04-FINAL-4.2.pdf. Since benefit levels are based on prior wages, low-paid workers tend to receive lower UI benefits. Yet workers who lived paycheck-to-paycheck when they were employed face even greater hardship in trying to cover their expenses on benefits that are a small fraction of their paycheck. At the same time, workers of color typically have fewer financial resources other than UI benefits to draw on during unemployment compared to white workers, as a result of systematic exclusion from wealth-building opportunities over generations.11Angela Hanks, Danyelle Solomon, and Christian E. Weller, Systemic Inequality (Center for American Progress, February 21, 2018), https://www.americanprogress.org/article/systematic-inequality/.
California’s low benefit levels also undercut UI’s ability to fight recessions. This is particularly troubling because a strong UI system is among the most effective tools available to promote economic recovery: According to the International Monetary Fund, each dollar paid in UI benefits during the pandemic generated $1.92 of economic growth as workers and their families were able to continue spending on basic necessities.12Klaus-Peter Hellwig, Supply and Demand Effects of Unemployment Insurance Benefit Extensions: Evidence from US Counties (International Monetary Fund, 2021), https://www.imf.org/en/Publications/WP/Issues/2021/03/12/Supply-and-Demand-Effects-of-Unemployment-Insurance-Benefit-Extensions-Evidence-from-U-S-50112. This powerful impact was achieved because the federal government expanded UI benefits during the pandemic: A $600 a week supplement to regular state UI benefits early in the pandemic (later $300 a week) ensured that unemployed workers could keep spending money, supporting local businesses across the state. The expanded federal benefits also ensured that California jobseekers and their families were able to meet expenses far better than they could by relying solely on the state’s regular UI benefits.
Federal pandemic programs also expanded eligibility for UI benefits to self-employed workers, caregivers, misclassified independent contractors, part-time workers, and many underpaid workers who are typically shut out of California’s regular UI system. By expanding the share of unemployed workers who received support, federal pandemic programs further improved the ability of UI to stabilize the economy.
More than 1 million undocumented workers, who represent over 6% of California's workforce, were, notably, not included in the UI benefit expansions.13University of California Merced Community and Labor Center, Worker Relief: Expanding the Safety Net to Excluded Workers, April 2023, https://clc.ucmerced.edu/sites/clc.ucmerced.edu/files/page/documents/worker_relief_2022_2.pdf. California instituted a Disaster Relief Assistance for Immigrants (DRAI) program to provide limited, one-time financial assistance to unemployed immigrants who were not otherwise eligible for UI benefits. However, the amount of support was grossly inadequate to meet immigrant workers’ needs and fell far short of what other Californians received, with researchers finding that unemployed citizen workers in California were eligible for up to 20 times more aid than the state’s undocumented workers in the first year of the pandemic.14University of California Merced Community and Labor Center, Essential Fairness: The Case for Unemployment Benefits for California’s Undocumented Immigrant Workers, March 2022, https://clc.ucmerced.edu/sites/clc.ucmerced.edu/files/page/documents/essential_fairness.pdf.
Workers who are on strike are also excluded from UI benefits, even though they miss paychecks and risk hardship for exercising their right to collective action. California should consider expanding UI benefits to striking workers, as New York and New Jersey already do.
Now both federal and state emergency programs have expired, and Californians are left with a UI system that does not adequately support jobseekers and still excludes many of them. California’s UI system is not prepared for the next unexpected economic shock or crisis. At a moment when policymakers are increasingly worried that the use of artificial intelligence could push large numbers of workers out of a job, a strong UI system is needed more than ever to support Californians who could be displaced.
A Strong and Effective UI System Requires Adequate Financing: California Needs Major Reforms
Unemployment insurance is funded by state and federal payroll taxes. In general terms, the Federal Unemployment Tax Act (FUTA) funds UI administrative costs and certain special programs, while the State Unemployment Tax Act (SUTA) tax, imposed by states, pays for UI benefits and is used to repay any federal loans made to the state’s UI trust fund (more on this below). SUTA tax revenues are deposited into a trust fund held for each state by the US Treasury.
State unemployment insurance benefits are paid out of each state’s trust fund. If states don’t have sufficient money in the trust fund to pay UI benefits, they can take out a federal loan. That’s what California and 21 other states did as they struggled to pay out benefits to tens of millions of laid off workers in the early days of the COVID-19 pandemic.15US Department of Labor, Office of Unemployment Insurance Division of Fiscal and Actuarial Services, State Unemployment Insurance Trust Fund Solvency Report 2021, March 2021,https://oui.doleta.gov/unemploy/docs/trustFundSolvReport2021.pdf. Although the federal government fully paid for expanded UI benefits during the pandemic economic crisis, California still faced a record $35 billion in costs for regular UI benefits. The state is still paying back those costs today, and currently faces a trust fund debt of $19.8 billion.16US Department of Labor, Office of Unemployment Insurance Division of Fiscal and Actuarial Services, State Unemployment Insurance Trust Fund Solvency Report 2024, March 2024, https://oui.doleta.gov/unemploy/docs/trustFundSolvReport2024.pdf.
Yet the extraordinary costs of the pandemic are only the latest and most dramatic manifestation of an ongoing structural deficit in California’s UI financing system. In January 2020, before the pandemic triggered record job loss, California already had the most underfunded UI system of any state.17US Department of Labor, Office of Unemployment Insurance Division of Fiscal and Actuarial Services, State Unemployment Insurance Trust Fund Solvency Report 2020, March 2020, https://oui.doleta.gov/unemploy/docs/trustFundSolvReport2020.pdf. Even today, with a relatively low unemployment rate hovering around 5%, California does not raise enough revenue to pay for current UI benefits, much less pay down its trust fund debt.
In addition to regular SUTA taxes, California employers are paying a 15% tax surcharge to pay back the trust fund loan, but this additional revenue is still not sufficient to reduce the principal. The state Employment Development Department projects that at the current rate of repayment, the outstanding federal UI loan balance will grow to nearly $22 billion in 2025.18Employment Development Department, May 2024 Unemployment Insurance (UI) Fund Forecast, May 2024, https://edd.ca.gov/siteassets/files/unemployment/pdf/edduiforecastmay24.pdf.
California must overhaul its UI revenue system to adequately support unemployed workers and the economy, pay down its debt, and build a reserve for future economic downturns.
Failing to Modernize UI Financing Costs All Californians
California’s underfunded UI system imposes steep costs across the state. As described above, job seekers face hardship as they struggle to get by on low UI benefits, even as many jobless workers are excluded. At the same time, meager benefits may not be enough to power the state’s economic recovery in the next downturn. Yet the costs are even more widespread: Because the interest on the trust fund debt has traditionally been paid out of the state’s general fund, all California residents will ultimately pay a price.
Due to rising interest rates, California owed $484 million in interest on UI debt in 2024 at a time when the state was facing a significant, multi-year budget shortfall. Although California was able to use internal borrowing to cover the interest payment due in 2023, there were fewer such options available in 2024 and the state’s final budget agreement covered most of the interest payment ($384 million) with General Fund dollars, taking significant resources away from other priorities. Looking ahead to future years, California will continue to owe interest every year that it maintains trust fund debt, and these payments will significantly reduce funding available to invest in other critical priorities, including health care, child care, affordable housing, and environmental protection.
And while employers may express concern about increased UI taxes in a modernized system, they also face a direct tax penalty if no action is taken: In addition to the surcharge to pay back the loan, California employers will also face a reduction in the Federal Unemployment Tax Act (FUTA) tax credit, effectively hiking their taxes as long as the trust fund debt continues to go unpaid.
Raising and Indexing the Taxable Wage Base Is Critical to Improving UI Financing
Failure to raise revenue is at the heart of California’s UI financing crisis. State policymakers have been reluctant to mandate that employers contribute the funds needed to finance a strong and effective UI system. As a result, California taxes employers on only the first $7,000 of each employee’s pay.
What Is the Taxable Wage Base and Why Is It Important for Understanding How Unemployment Insurance Benefits Are Funded?
State unemployment benefits are financed through state payroll taxes paid by employers. There are two basic factors that determine how much employers pay in those taxes: the tax rate and the taxable wage base. The tax rate is determined for each employer based on tax rate schedules outlined in state law. The rate for a particular employer is then applied to a taxable wage base equal to each of their employee’s first $7,000 in annual earnings to determine how much tax the employer owes.
For example, new employers are assigned a state payroll tax rate of 3.4%. If a new employer has three employees all earning $40,000 annually, the employer would calculate the payroll tax they owe by multiplying 3.4% by $7,000 for each employee ($238), for a total annual tax of $714 for all three employees. If the taxable wage base were higher, say $21,000, the same amount of revenue could be raised with a much lower tax rate (1.1%) because a greater proportion of each worker’s wages would be subject to taxation. Alternatively, by maintaining a 3.4% tax rate, the higher taxable wage base would raise three times as much revenue ($2,142 for all three employees).
When comparing state payroll taxes across states, it’s important to consider both the tax rate and the taxable wage base to which that rate is applied. A state with relatively high tax rates does not necessarily result in employers in that state paying more in taxes than states with lower tax rates. For example, a 5.7% rate would generate a tax of $400 if applied to a base of $7,000. But a much lower rate of 3.8% would generate twice as much tax ($800) if applied to a base of $21,000.
This low fixed amount, known as the taxable wage base, not only raises inadequate revenue but raises it inequitably. The low taxable wage base means that California taxes a higher proportion of the wages of low-paid workers and imposes the highest effective tax rates on small businesses while failing to keep up with wage growth and taxing a far smaller share of wages than most other states. Raising the taxable wage base and indexing it to the state’s average wages is essential to strengthen the UI system.
Wages have increased significantly over the last 40 years, yet California’s taxable wage base has remained fixed, lagging further and further behind. While the state’s taxable wage base of $7,000 was equivalent to full-time wages at the federal minimum wage in 1982, it was less than three months of full-time work at the minimum wage in 2022 in California. By 2022, California’s effective UI tax rate was less than half of what it had been in 1980, as the figure below illustrates.
California’s UI financing system disproportionately taxes the employers of low-paid and part-time workers because the state’s taxable wage base is so low. Take, for example, employers subject to a state UI tax rate of 3.1%, which is the average rate paid by employers in 2023. Since most workers earn more than the state’s taxable wage base of $7,000, employers effectively pay $217 in state UI taxes per worker. But this represents a much larger share of employers’ labor costs for low-paid and part-time workers. For instance, $7,000 amounts to 1.3% of the earnings paid to half-time minimum wage workers, compared to 0.7% of the earnings paid to full-time minimum wage workers and just 0.2% of the earnings of workers paid three times the minimum wage, as the figure below shows. Researchers find that this creates disincentives to hire part-time workers in the first place, leading to fewer employment opportunities, which would impact workers who benefit from the flexibility of part-time work or who rely on additional earnings to make ends meet.19Mark Duggan, Audrey Guo, and Andrew C. Johnston, Would Broadening the UI Tax Base Help Low-Income Workers? (IZA Institute for Labor Economics, January 2022), https://docs.iza.org/dp15020.pdf; Po-Chun Huang, “Employment Effects of the Unemployment Insurance Tax Base,” The Journal of Human Resources, 59, no.4(March 2022) https://doi.org/10.3368/jhr.0719-10316R2. Raising the taxable wage base would help to address these inequalities.
Small businesses also bear a disproportionate tax burden as a result of California’s low taxable wage base for UI.
Raising California’s taxable wage base is not a pie-in-the-sky idea. In fact, 94% of US states already have a higher taxable wage base than California, including Washington State with a taxable wage base of $68,500 in 2024, Oregon ($52,800), Nevada ($40,600) and Hawaii ($59,100).20US Department of Labor, Employment and Training Administration, Significant Provisions of State Unemployment Insurance Laws Effective January 2024, https://oui.doleta.gov/unemploy/content/sigpros/2020-2029/January2024.pdf. These states not only tax a much higher share of payrolls than California, but their wage base is indexed to the state’s average weekly wage so that it adjusts automatically each year as wages rise, providing far more reliable financing than California’s low fixed rate. As the figure below shows, businesses in California actually pay taxes on a smaller share of wages than any other state, with just 8% of average annual earnings taxed. California’s low, fixed taxable wage base leads it to raise far less UI revenue than the state needs.
California Must Shift to Forward Financing of UI Benefits and Reform Experience Rating
Raising and indexing California’s taxable wage base is essential to ensuring adequate UI financing, but that alone will not be sufficient to sustainably fund the system because of the structurally flawed mechanism that determines UI tax rates in California.
California has seven employer contribution rate schedules that operate to increase state UI tax rates when the balance of the state’s UI trust fund is low and to reduce rates when the trust fund has more funding.21Employment Development Department, California System of Experience Rating, DE 231Z Rev. 17, (6-22), https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de231z.pdf. This “pay-as-you-go” mechanism is meant to increase revenues at the moment they are needed, but it produces two perverse outcomes. First, by hiking tax rates during economic downturns (when more workers are claiming UI benefits and the trust fund balance falls), the system compels businesses to pay higher taxes during the most difficult economic times, when their own resources are most depleted. Raising business costs during recessions undermines the ability of UI to promote economic recovery. Second, by lowering tax rates as the trust fund balance begins to recover, this system makes raising additional revenue difficult. If California were to increase its taxable wage base without fixing the “pay-as-you-go” mechanism, employer tax rates would automatically fall as soon as the trust fund balance began to improve, making it more difficult to reach and maintain solvency.
The weakness of pay-as-you-go financing is evident with a look at California’s history: As the figure below indicates, the state failed to raise sufficient revenue to fund UI benefits in every recession since 1980.
The alternative to California’s pay-as-you-go financing mechanism is a forward-funded system designed to take in more revenue than it pays out during periods of low unemployment. Forward funding enables state UI systems to build up sufficient reserves during periods of economic growth to pay benefits during economic downturns, when large numbers of workers are laid off and seeking unemployment benefits. The US Department of Labor’s UI Trust Fund solvency standards are designed to encourage this type of forward funding.22US Department of Labor, Office of Unemployment Insurance Division of Fiscal and Actuarial Services, State Unemployment Insurance Trust Fund Solvency Report 2024, March 2024, https://oui.doleta.gov/unemploy/docs/trustFundSolvReport2024.pdf. Numerous other states, including Oregon, use a forward-funding mechanism to put their UI systems on more stable financial footing.23State of Oregon Employment Department Oregon Employment Department Announces 2024 Rates for Paid Leave Oregon and Unemployment Insurance, November 2023, https://www.oregon.gov/employ/NewsAndMedia/Documents/2023-11-Tax-Contribution-Rate-Notice.pdf.
The mechanism for determining each individual employer’s UI tax rate is also flawed and needs to be reformed. In general, private employers are assigned a tax rate based on their experience with unemployment — that is, their history of laying off workers who then claim unemployment benefits.24New employers are initially assigned a rate of 3.4%, which is then adjusted after 2-3 years based on their experience rating. Additionally, public and nonprofit employers may choose to finance UI benefits on a dollar-for-dollar reimbursement basis instead of being subject to experience rating. Employment Development Department, California System of Experience Rating, DE 231Z Rev. 17 (6-22), https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de231z.pdf; Employment Development Department, 2024 California Employer’s Guide, DE 44 Rev. 50 (1-24), 9, https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de44.pdf. This system, known as “experience rating,” is required by the federal government, but states have considerable flexibility in selecting specific experience rating methods. In California, an employer’s experience rating is determined by a formula that takes into account their contributions into the trust fund and the UI benefits paid to their former workers.
There are two unintended consequences of this approach to experience rating. First, because employers’ contribution rate increases when their former employees claim UI benefits, employers have an incentive to discourage workers from applying for benefits, provide misinformation about eligibility, and dispute UI benefit claims. Second, this approach to experience rating makes raising the taxable wage base, on its own, a less effective strategy for improving UI financing. This is because increasing the taxable wage base would improve employers’ experience rating and automatically decrease their contribution rates (all else being equal), effectively limiting the amount of revenue that could be raised.
One potential alternative to this system is an experience rating system based on quarterly changes in the hours employees work for a given employer, regardless of whether these workers claim UI benefits.25Josh Bivens et al., Reforming Unemployment Insurance (Center for American Progress, Center for Popular Democracy, Economic Policy Institute, Groundwork Collaborative, National Employment Law Project, National Women’s Law Center, and Washington Center for Equitable Growth, June 2021), 36, https://files.epi.org/uploads/Reforming-Unemployment-Insurance.pdf. This would remove the incentive for employers to discourage or dispute benefit claims and would make increasing the taxable wage base more effective at shoring up the trust fund while supporting stronger benefits and broader eligibility.
Additionally, California could explore adopting this alternative experience rating system in combination with a method of assigning employer tax rates based on desired revenue targets, which researchers find is a highly effective strategy for improving UI financing.26A comprehensive analysis of state UI financing systems prepared by the Urban Institute for the US Department of Labor concluded that this approach, called “array allocation,” in combination with indexing the taxable wage base to wage growth were two key factors supporting UI trust fund adequacy. The analysis also suggested that states using array allocation have more stability in tax rates from year to year, leading to more predictability for both employers and the UI trust fund. Wayne Vroman et al., A Comparative Analysis of Unemployment Insurance Financing Methods (Urban Institute, December 2017), xv, 20, 42-43, 46, https://www.dol.gov/sites/dolgov/files/OASP/legacy/files/A-Comparative-Analysis-of-Unemployment-Insurance-Financing-Methods-Final-Report.pdf. Finally, California should consider how app corporations like Uber, Lyft, and DoorDash, which use technology to set and control working conditions, short-change California’s UI system by misclassifying employees as independent contractors, circumventing traditional labor laws and taxes. A study from the UC Berkeley Labor Center finds thatIf Uber and Lyft had treated workers as employees, these two corporations alone would have paid $413 million into the state’s UI trust fund between 2014 and 2019.27Ken Jacobs and Michael Reich, What Would Uber and Lyft Owe to the State Unemployment Insurance Fund? (Institute of Research on Labor and Employment, University of California, Berkeley, May 2020), https://laborcenter.berkeley.edu/pdf/2020/What-would-Uber-and-Lyft-owe-to-the-State-Unemployment-Insurance-Fund.pdf.
Conclusion
California’s UI system is a critical piece of social infrastructure and could become an engine of economic dynamism for the state, enabling workers, employers, and the economy to thrive. To achieve this vision, policymakers must stabilize the state’s UI finances by raising the taxable wage base and shifting to a forward-financing mechanism, providing the revenue needed to support California jobseekers with adequate benefits and expand assistance to workers who are currently shut out of the system.
Patrick Carey, et al., “Applying for and Receiving Unemployment Insurance Benefits During the Coronavirus Pandemic,” Monthly Labor Review, US Bureau of Labor Statistics, September 2021, https://doi.org/10.21916/mlr.2021.19.
Mark Duggan, Audrey Guo, and Andrew C. Johnston, Would Broadening the UI Tax Base Help Low-Income Workers? (IZA Institute for Labor Economics, January 2022), https://docs.iza.org/dp15020.pdf; Po-Chun Huang, “Employment Effects of the Unemployment Insurance Tax Base,” The Journal of Human Resources, 59, no.4(March 2022) https://doi.org/10.3368/jhr.0719-10316R2.
State of Oregon Employment Department Oregon Employment Department Announces 2024 Rates for Paid Leave Oregon and Unemployment Insurance, November 2023, https://www.oregon.gov/employ/NewsAndMedia/Documents/2023-11-Tax-Contribution-Rate-Notice.pdf.
24
New employers are initially assigned a rate of 3.4%, which is then adjusted after 2-3 years based on their experience rating. Additionally, public and nonprofit employers may choose to finance UI benefits on a dollar-for-dollar reimbursement basis instead of being subject to experience rating. Employment Development Department, California System of Experience Rating, DE 231Z Rev. 17 (6-22), https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de231z.pdf; Employment Development Department, 2024 California Employer’s Guide, DE 44 Rev. 50 (1-24), 9, https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de44.pdf.
25
Josh Bivens et al., Reforming Unemployment Insurance (Center for American Progress, Center for Popular Democracy, Economic Policy Institute, Groundwork Collaborative, National Employment Law Project, National Women’s Law Center, and Washington Center for Equitable Growth, June 2021), 36, https://files.epi.org/uploads/Reforming-Unemployment-Insurance.pdf.
26
A comprehensive analysis of state UI financing systems prepared by the Urban Institute for the US Department of Labor concluded that this approach, called “array allocation,” in combination with indexing the taxable wage base to wage growth were two key factors supporting UI trust fund adequacy. The analysis also suggested that states using array allocation have more stability in tax rates from year to year, leading to more predictability for both employers and the UI trust fund. Wayne Vroman et al., A Comparative Analysis of Unemployment Insurance Financing Methods (Urban Institute, December 2017), xv, 20, 42-43, 46, https://www.dol.gov/sites/dolgov/files/OASP/legacy/files/A-Comparative-Analysis-of-Unemployment-Insurance-Financing-Methods-Final-Report.pdf.
The California Women’s Well-Being Index (WWBI) is a county-level, composite index that shows how women are faring throughout California. The WWBI consists of 30 indicators of women’s well-being that are grouped into five dimensions: Health, Personal Safety, Employment and Earnings, Economic Security, and Political Empowerment. The methodology used to create the index is outlined in detail below.
Creating the Women’s Well-Being Index In deciding which measures, or “indicators,” to include in the WWBI, the Budget Center first engaged in a thorough review of research on women and families as well as an evaluation of comparable projects at the national and state level.1 This review resulted in a wide-ranging list of potential indicators. Because this county-level index measures women’s well-being, potential indicators were limited to “outputs” – that is, those that measure attributes of the female population or reflect community characteristics. This standard eliminated “input” indicators, such as those that measure public spending or community resources, for example.
The Budget Center subsequently screened data sources to ensure that data for potential indicators were current, available from a reputable source, and based on sound research methods. Data also were screened to verify that they are updated on a regular basis in order to allow for updates to the WWBI in future years. This initial search resulted in a list of 50 potential indicators.
Next, the Budget Center, in cooperation with the Women’s Foundation of California, surveyed individuals who focus on issues of concern to women across the state. (See the Acknowledgments for a list of survey respondents.) The survey allowed respondents to rank the importance of potential indicators in measuring women’s well-being as well as to suggest alternative indicators. The initial survey was sent via email to approximately 200 individuals. Three follow-up emails were sent to the same individuals, yielding a response rate of approximately 30%. Based primarily on survey results, the initial list of 50 indicators was narrowed down to 30 indicators falling within five dimensions of women’s well-being.
Data Sources and Data Quality The 30 indicators included in the WWBI are based on data from a variety of state and federal agencies as well as from universities. Data for 17 indicators come from surveys, including the US Census Bureau’s American Community Survey (ACS) and the California Health Interview Survey (CHIS) conducted by University of California, Los Angeles. The remaining data come from administrative sources, with this information collected by various agencies and organizations, such as the California Department of Justice or the California Department of Public Health. Data for most indicators reflect multi-year estimates. (Combining data from multiple years increases the reliability of the data.) These multi-year estimates reflect the average condition in each county during a specific time period.
For survey data, margins of error at the 95% confidence level are included in the WWBI whenever possible and applicable.2 In addition, margins of error at the 95% confidence level are included for some administrative data. While these data are not subject to sampling error – because they reflect a full “universe” of individuals rather than a sample – it is common to provide the margin of error for certain vital statistics because they are subject to random variation during any given period.
In some cases, due to data limitations, data for certain counties for specific indicators were deemed unreliable. The Budget Center used several common benchmarks to determine if a data point was unreliable. This includes an event count of less than 20 in a county for any given time period and/or a coefficient of variation greater than or equal to 30%. For the ACS data, a higher standard was applied: a coefficient of variation greater than or equal to 10%.
When data for one or more counties were determined to be unreliable, county groups were created by aggregating estimates. This was done in order to create a more stable estimate applicable to each county in the group. When creating county groups, several considerations were made. First, contiguous counties with unreliable estimates were often grouped together. However, if possible, county groups were created with the smallest number of counties to avoid unnecessary loss of detail. For example, if the data for four contiguous counties were deemed unreliable, ideally two county groups would be created instead of one large county group. In some cases, data for one or more counties were grouped with a county that had a reliable estimate in order to create a stable estimate.
In addition, indicator values were considered when aggregating counties. For example, if a county with an unreliable estimate needed to be grouped with another county, the indicator values were taken into account in order to avoid aggregating counties with disparate estimates. In some cases, groups do not consist of contiguous counties because the estimates for the contiguous counties were too different to be combined.
For some counties and racial/ethnic groups, the Budget Center chose to display the unreliable estimate. In these cases, the estimate is noted in the tool with an asterisk.
Calculating the Women’s Well-Being Index The WWBI consists of a wide range of data reported in a variety of ways such as rates, ratios, or percentages. These data have varying ranges and scales. In order to construct a composite index, indicators within each dimension were standardized and aggregated to create a county-level value for each dimension and for the overall index. This section outlines the methodology used in standardizing and aggregating the data in the WWBI.
Data were standardized for each indicator by calculating the z-score. The z-score converts a value into units of measurement based on the standard deviation. The z-score is calculated using the 58-county averages and standard deviations for each indicator. This allows for comparing values across indicators with different formats and with varying ranges of data. The z-score is calculated for each county and indicator using the following formula:
In some instances, a higher z-score indicates greater well-being, such as the percentage of women with a bachelor’s degree. In other cases, a higher z-score indicates lesser well-being, such as the female unemployment rate. In order to ensure that higher scores consistently reflect greater well-being, a number of indicators were reverse-coded. This was done by multiplying the z-score by negative 1.
One disadvantage of using z-scores is that the value of the z-score is hard to interpret. In order to create a value that is easy to understand, the z-score for each indicator was converted into a 100-point scale using the following formula:
The highest scaled z-score for any given indicator has a value of 100, and the lowest scaled z-score has a value of 0, with higher scores indicating greater well-being. However, while a score of 100 reflects the best value across all counties, it is not indicative of maximum well-being. For example, a score of 100 for the voter registration indicator does not mean that all eligible women in that county are registered to vote. Likewise, a score of 0 does not indicate that no women in that county are registered to vote.
To calculate scores for each of the five dimensions, we averaged the scaled z-scores for each county within each dimension. We then calculated overall index scores by averaging each county’s five dimension scores. The indicators and dimensions were not weighted prior to aggregation (i.e., they have equal weights). This reflects the belief that each indicator within a dimension has equal bearing on the well-being of women. Likewise, equally weighting the five dimensions indicates that health, personal safety, employment and earnings, economic security, and political empowerment are all equally important in assessing how women are faring in California.3
Counties are ranked by indicator score, by dimension score, and by their overall index score. In general, the WWBI employs a “modified competition ranking system” to rank the counties. In a modified competition ranking system, ties are ranked with the lowest rank. For example, if three of California’s 58 counties are tied for last, they would have a rank of 58. Using the traditional ranking system, their rank would be 56. The exception to this rule is when two or more counties are tied for first. When this occurs, these counties are ranked first.
Updates Made to the Women’s Well-Being Index
The California Budget & Policy Center updated the Index in October 2020 and again in September 2024. The following changes were made across the versions.
2020 In 2020, eight indicators were altered based on feedback received by stakeholders. The following provides a list of the changes made to these indicators.
Economic Security Dimension
Cost of Housing: The Cost of Housing indicator provides data on housing affordability. The first version of the Women’s Well-Being Index measured housing affordability by using data from the US Housing and Urban Development’s calculation of Fair Market Rents and the US Census Bureau’s calculation of single mothers’ median income. The 2020 Index generalizes this measure of housing affordability by using median gross rent and women’s median annual income data from the US Census Bureau’s American Community Survey (2014-2018).
Employment & Earnings Dimension
Labor Force Participation: The Labor Force Participation indicator shows what share of the population is actively working or looking for work. The first version of the Index used the population ages 16 to 64. The 2020 Index uses the prime-age working population – ages 25 to 64 – in calculating the labor force participation rate. This age group would typically be expected to be working or looking for work.
Low-Wage Workers: The first version of the Index provided data on the percentage of women working in low-wage occupations. The 2020 Index refines this indicator, providing data on the percentage of women paid low wages.
Health Dimension
Health Care Coverage: The Health Care Coverage indicator provides data on the share of women without health insurance. The first version of the Index provided data for women ages 18 to 64. The 2020 Index provides data for women ages 19 to 64. This change is due to a modification made by the Census Bureau in the presentation of these data in their American Community Survey table (B27001).
Life Expectancy: The Life Expectancy indicator provides data on the estimated average lifespan of an individual at birth. This indicator replaces the Obesity indicator from the 2016 Index. Life expectancy is a more common measure of health and wellness.
Safety Dimension
Sexual Assault: Prior to 2014, the Federal Bureau of Investigation collected data on three types of sexual offenses: rape, sodomy, and sexual assault with an object. In 2014, the Federal Bureau of Investigation required reporting agencies in the US to aggregate data for these assaults into one offense: forcible rape. This is a broader definition of sexual assault that encompasses a wider range of offenses. The California Department of Justice implemented this change in the reporting of crime data in 2014, which resulted in an increase in the number of reported rapes.
Domestic Violence: The first version of the Index used the total population when calculating domestic violence rates for the population in each county. The 2020 Index uses the female population for all rates in the Personal Safety Dimension to be more consistent across indicators.
Assault: The first version of the Index the female population age 18 and over when calculating rates of assault for the population in each county. The 2020 Index uses the female population for all rates in the Personal Safety Dimension to be more consistent across indicators.
2024 In 2024, two indicators were altered based on recent economic security research and feedback received by stakeholders. The following provides a list of the changes made to these indicators.
Economic Security Dimension
Commuting Time/Digital Equity: The digital equity indicator replaced the commuting time variable as digital equity was determined to be a more relevant variable. Specifically, a series of literature points to challenges with economic security when adults do not have access to broadband or a computer. The racial digital divide is particularly stark. This indicator shows the number and percentage of adults (18 and over) with cable, modem, fiber optic or DSL service and a desktop, laptop, netbook, or netbook computer in the household. This indicator utilizes the US Census Bureau’s 2018-2022 five-year American Community Survey variables reflecting access to in-home internet and access to in-home computer/laptop.
High School Diploma/Bachelor’s Degree: The bachelor’s degree indicator replaced the high school diploma indicator. This change was made to reflect recent research showing that women without a bachelor’s degree were more likely to lose their jobs during the COVID-19 pandemic. The indicator shows the number and percentage of adults (25 and over) that have a bachelor’s degree. This indicator utilizes the US Census Bureau’s 2018-2022 five-year American Community Survey variables reflecting educational attainment.
Food Insecurity/Food Hardship: While the data source and analysis for this indicator remain the same across versions, the label for the food insecurity indicator changed to food hardship. This change was made given that the United States Department of Agriculture’s definition of food insecurity did not completely align with the measure used for this indicator.
Health Dimension
Life Expectancy: Prior to the 2019 dataset, the life expectancy data from the Institute for Health Metrics and Evaluation did not disaggregate life expectancy at birth by race/ethnicity. The 2019 dataset allowed for this disaggregation and is now included in the indicator.
Safety Dimension
Fatal Accidents: The fatal accidents racial/ethnic disaggregation now disaggregates between Asian and Pacific Islander identities. In previous versions, Asian and Pacific Islander were combined into one category.
Hospital Visits Due to Assault: The hospital visits due to assault now includes a racial/ethnic disaggregation for Multi-Race. Previous versions did not include this disaggregation.
Hospital Visits Due to Assault: The hospital visits due to assault indicator now includes a racial/ethnic disaggregation for Multi-Race. Previous versions did not include this disaggregation.
Suicide: The suicide indicator now includes a racial/ethnic disaggregation for Multi-Race. Previous versions did not include this disaggregation.
Endnotes
1 See for example, Helen Boutrous, et al., The Report on the Status of Women and Girls in California: 2015 (Mount Saint Mary’s University, Los Angeles: 2015); Anna Chu and Charles Posner, The State of Women in America: A 50-State Analysis of How Women Are Faring Across the Nation (Center for American Progress: September 2013); Cynthia Hess, et al., The Status of Women in the States 2015 (Institute for Women’s Policy Research: May 2015); Kristen Lewis and Sarah Burd-Sharps, Women’s Well-Being: Ranking America’s Top 25 Metro Areas (Measure of America: April 2012); University of Minnesota, Center on Women and Public Policy, and Women’s Foundation of Minnesota, Status of Women & Girls in Minnesota: Research Overview (June 2014); Wider Opportunities for Women, The Economic Security Scorecard: Policy and Security in the States (2013). 2 A 95% confidence level means that a researcher is 95% confident that the interval defined by the margins of error contains the true value for the population as a whole. 3 For more details on weighting within composite indexes and other methodological issues, see Organization for Economic Co-Operation and Development, Handbook on Constructing Composite Indicators: Methodology and User Guide (2008).
Acknowledgements
The California Women’s Well-Being Index is a project of the California Budget & Policy Center.
Laura Pryor (Research Director) and Hannah Orbach-Mandel (Policy Analyst) prepared the 2024 Women’s Well-Being Index (WWBI) with assistance from Nishita Nair (Research Associate) and other Budget Center staff. GreenInfo Network developed the data visualization, downloadable county fact sheets, and indicator fact sheets.
Kristin Schumacher, a former California Budget & Policy Center analyst, created the WWBI to help advocates and policymakers understand how women are faring in California. Since the WWBI was first published in 2016, the Index has been replicated in several states nationwide. Schumacher is a consultant to the 2024 update of the WWBI and continues to advance this work through her consulting firm, Aster Policy Analytics.
We are thankful to a number of individuals who have contributed to earlier work on the Women’s Well-Being Index.
For the 2024 Women’s Well-Being Index, the Budget Center consulted a number of individuals to help inform the tool’s updates. Additionally, in late 2017 and early 2018 a number of individuals shared their thoughts on policies to boost women’s economic security, employment, and earnings. These individuals helped to shape policy recommendations for women related to work supports, boosting income, building wealth, and improving programs and services that benefit women with low-incomes in California. (Organizational affiliation and title reflects position at time of interview.)
Dr. Fatima Alleyne, Black Women Organized for Political Action
Jasmine Amons, Program Associate, National Center for Youth Law, Women’s Policy Institute Fellow
Graciela Aponte-Diaz, Director of California Policy, Center for Responsible Lending
Sarah Arce, Senior Policy Director, The Campaign for College Opportunity
Elizabeth Ayala, Senior Program Associate, The Women’s Foundation of California
Barbara Baran, Co-Director, California EDGE Campaign
Alexandra Bastien, Senior Associate, Policy Link
Sarah Bohn, Research Fellow, Public Policy Institute of California
Christa Brown, Manager, Financial Justice Project, City and County of San Francisco
Lewis Brown, Jr., Senior Associate, Policy Link
Tyrone Buckley, Policy Director, Housing California
Maggie Cervantes, Executive Director, New Economics for Women
Elena Chávez Quezada, Senior Program Officer, Walter & Elise Hass Fund
Judy Darnell, Vice President of Public Policy United Ways of California
Melany de la Cruz-Viesca, Assistance Director, UCLA Asian American Studies Center
Rachel Deutsch, Supervising for Worker Justice, Center for Popular Democracy
Jodi Doane, Grants & Community Relations Manager, JVS SoCal, Women’s Policy Institute Fellow
Rosalyn Epstein, Financial Empowerment Program Manager, National Coalition for Asian Pacific American Community Development
Tania Flores, Senior Program Associate, The Women’s Foundation of California
Michelle Freridge, Executive Director, Asian Youth Center
Emily Gordon, Director of Strategic Research, Center for Popular Democracy
Sabrina Hamm, Statewide Managing Director, California Asset Building Coalition
Katie Hern, Co-Founder, California Acceleration Project
Dr. Hilary Hoynes, Haas Distinguished Chair in Economic Disparities, Goldman School of Public Policy, University of California Berkeley
Mary Ignatius, Statewide Organizer, Parent Voices
Jennifer Ito, Research Director, USC Program for Environmental and Regional Equity (PERE)
LaNiece Jones, Executive Director, Black Women Organized for Political Action
Rebecca Kauma, Director of Digital Equity, County of Los Angeles
Tatiana Larkin, Black Women Organized for Political Action
Anya Lawler, Policy Advocate, Western Center on Law & Poverty
Vihncent Le, Senior Legal Counsel of Tech Equity, The Greenlining Institute
Pete Manzo, President & CEO, United Ways of California
Amy Matsui, Senior Counsel and Director of Income Security, National Women’s Law Center
Heather McCulloch, Founder and Director, Closing the Women’s Wealth Gap
Krista Niemczyk, Public Policy Manager, California Partnership to End Domestic Violence
Marj Plumb, Chief Strategist, Policy Advocacy and Training, The Women’s Foundation of California
Anne Price, President, Insight Center
Patti Prunhuber, Senior Policy Attorney, Child Care Law Center
Aaron Schill, Director of Research and Programs, National Digital Inclusion Alliance
Donna Sneeringer, Director of Government Relations, Child Care Resource Center
Jessica Stender, Senior Counsel, Workplace Justice & Public Policy, Equal Rights Advocates
Adie Tomer, Senior Fellow, Brookings Metro
Marisabel Torres, Senior Policy Analyst, UnidosUS
Julie Vogtman, Director of Job Quality and Senior Counsel, National Women’s Law Center
Lisa Williams, Black Women Organized for Political Action
In addition, individuals who responded to our survey in summer 2015 on selecting indicators were instrumental in guiding the development of the initial version of the California Women’s Well-Being Index. (Organizational affiliation reflects position at time of survey.)
Dion Aroner, Partner, Aroner, Jewel and Ellis Partners
Marisol Aviña, Program Manager, The California Endowment
Barbara Baran, Co-Director, California EDGE Coalition
Jessica Bartholow, Legislative Advocate, Western Center on Law & Poverty
Rebecca Hamburg Cappy, Director, Northern California Office, Alliance for Justice
Krystle Contreras, Director of Outreach and Prevention, Central California Family Crisis Center
Betsy Cotton, Director, Close the Gap CA
Sarah Crow, Vice President, The Opportunity Institute
Cynthia Douglas, California Department of Social Services
Myra Duran, Policy Manager, California Latinas for Reproductive Justice
Stephanie Fajuri, Supervising Attorney, Disability Rights Legal Center – Cancer Legal Resource Center
Sequoia Hall, Leadership Council Member, East Oakland Building Health Communities
Marlene Christine Hurd, Human Resources Manager, Administrator, Healthy Communities Inc. dba Healthy Oakland
Jennifer Ito, Project Manager, University of Southern California, Program for Environmental and Regional Equity
Kate Karpilow, Executive Director, California Center for Research on Women & Families
Kimberly Kenny, Associate Vice President, Mount Saint Mary’s University, Los Angeles
Mari Lopez, Policy Director, Vision y Compromiso
Linda Meric, Executive Director, 9to5, National Association of Working Women
Ami Nagle, President, Nagle & Associates
Nikki Newsome, Program Manager, Reading and Beyond
Vanessa Perez, Civic Engagement Specialist, Time for Change Foundation
Mary L. Perry, Education Consultant
Vonya Quarles, Executive Director, Starting Over, Inc.
Maria Reyes, Bilingual Legal Services Specialist, YWCA Silicon Valley
Gabriela Sandoval, Director of Research and Chief Economic Security Officer, Insight Center for Community Economic Development
Diana Scott, Chief Human Resources Officer, Prologis
Laura Segura, Executive Director, Monarch Services, Santa Cruz County
Hillary Selvin, Executive Director, National Council of Jewish Women/Los Angeles
Cathy Senderling-McDonald, Deputy Executive Director, California Welfare Directors Association
Ann Stevens, Director, Center for Poverty Research, University of California, Davis
Nancy Strohl, Consultant, Office of Senator Holly J. Mitchell
Anne Stuhldreher, Senior Program Manager, The California Endowment
Jesse Torrey, Associate Director, RISE San Luis Obispo County
Francesca Vietor, Program Director, Environment, Public Policy, Civic Engagement, The San Francisco Foundation
Nancy Volpert, Director of Public Policy, Jewish Family Service of Los Angeles
Heather Warnken, Legal Policy Associate, Warren Institute on Law & Social Policy, University of California, Berkeley, School of Law
Deborah Peterson Small, Executive Director, Break the Chains: Communities of Color and the War on Drugs
Nicole D. Vick, Senior Health Educator, Los Angeles County Department of Public Health
Pete Woiwode, Director, California Partnership
Note: The 2024 California Women’s Well-Being Index was updated on September 18, 2024 to reflect Senate representation from districts established by both the 2011 and 2021 California Citizens Redistricting Commission as part of a two-year implementation process. The district map used in prior version did not account for this two-year implementation process.
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key takeaway
California voters will decide on November 5th, 2024 whether to pass Proposition 35, which would 1) require the state to request federal approval for the Managed Care Organization tax on an ongoing basis and 2) allocate those dollars for certain health care investments.
Access to health care is essential for everyone to be healthy and thrive. In California, Medi-Cal, the state’s Medicaid program, provides free or low-cost health care to over one-third of the state’s population. Medi-Cal covers a wide range of services to Californians with modest incomes, and many children, seniors, people with disabilities, and pregnant individuals rely on it. About half of Medi-Cal beneficiaries are Latinx, highlighting Medi-Cal’s role in promoting health equity.
California’s shortage of health care workers undermines the availability and quality of care for communities across the state. When people can’t find a provider in their area or experience long wait times for appointments, they don’t have meaningful access to health care. Enrolling in Medi-Cal and navigating the health care system can also be difficult, underscoring the need to invest in outreach and enrollment supports. While state policymakers have made considerable investments in recent years to bolster the health care workforce, more progress is needed.
what is health equity?
When everyone has the opportunity to be as healthy as possible and no one is disadvantaged from achieving this because of their race, gender identity, sexual orientation, the neighborhood they live in, or any other socially defined circumstance.
This year, policymakers had to make challenging decisions about health care investments due to the state’s recent budget shortfall and resistance from some state leaders to raise ongoing revenues. This has led to debates over the allocation of revenue from the state’s recently approved Managed Care Organization (MCO) tax. In response, many representatives of the health care industry have proposed Proposition 35, which would:
Require the state to request federal approval for the MCO tax on an ongoing basis.
Allocate MCO tax revenue for certain health care investments.
There are merits to having dedicated funding to invest in the state’s health care system. However, this approach would reduce flexibility in the state budget and could negatively affect available funding for other key services that improve the lives of Californians. This Q&A provides a high-level overview of Prop. 35, including how Californians with low incomes might be impacted by its passage as well as implications for the state budget.
Managed Care Organizations (MCOs), also known as health insurance plans, are responsible for managing health care services as a way to control costs, utilization, and quality of care. Anthem Blue Shield and Kaiser Permanente are two examples of MCOs in California. These health insurance plans oversee the health care benefits that people receive, often requiring prior authorization or referrals to ensure that people receive appropriate and cost-effective care.
MCOs manage health care services for people with private health insurance as well as Medi-Cal enrollees. They contract with Medi-Cal to receive payments based on the number of Medi-Cal recipients they serve. Medi-Cal is a joint federal-state program, with the federal government covering part of the cost and the state covering the rest.
Federal law allows states to impose a tax on MCOs and other health-related services to help cover the state share of Medicaid health care costs, but states must comply with federal regulations and receive federal approval for these taxes. Eighteen states reported having an MCO tax in place during the 2023 state fiscal year.
California’s MCO tax is a charge based on enrollment in Medi-Cal managed care plans and private health insurance plans. The MCO tax is distinct from other types of state taxes in that the primary state fiscal benefit comes from the additional federal dollars drawn down as a result of the tax. MCOs bear very little of the cost, as they receive Medi-Cal payments from state and federal funds that offset the portion of the tax levied on Medi-Cal enrollment. By drawing down additional federal funding, the MCO tax frees up state General Fund dollars that would otherwise have been used to support existing Medi-Cal services.
California’s MCO tax was most recently approved in December 2023, and it will expire at the end of 2026 unless it is renewed again. However, state leaders are seeking additional changes to the MCO tax structure to draw down more federal funding. These changes are still pending federal approval.
The state is expected to receive net revenues of $7 billion to $8 billion annually while the tax is in effect, assuming the federal government approves recent changes. Essentially, the net revenues are the additional federal funds the state is able to draw down minus the cost of the state’s portion of payments to MCOs to offset the cost of the tax. Under the enacted 2024-25 budget, most of that revenue will be used to offset state General Fund spending on existing Medi-Cal services, with a smaller portion going to increased provider rates and augmentations.
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How do policymakers currently plan to use MCO tax dollars?
Policymakers outlined a plan — which Prop. 35 would overturn — to use revenue from the MCO tax in the 2024-25 budget package, with the majority of dollars allocated to offset General Fund spending on Medi-Cal and maintain existing services in the program. Assuming that the federal government approves the changes to the MCO tax that state leaders are seeking, the budget includes the following MCO tax dollars to sustain existing services in Medi-Cal:
$6.9 billion in 2024-25
$6.6 billion in 2025-26
$5.0 billion in 2026-27
Policymakers also allocated funding from the MCO tax for new targeted Medi-Cal provider rate increases as well as other investments. These budget allocations include:
$133 million in 2024-25
$728 million in 2025-26
$1.2 billion in 2026-27
The rate increases from the current MCO tax spending plan are intended to build on investments that policymakers made in previous years. As shown below, the majority of funds for rate increases that will go into effect on January 1, 2025 will support emergency department physician services, abortion care and family planning, and ground emergency medical transportation.
The current MCO tax spending plan also includes additional rate increases and investments that would take effect on January 1, 2026, with the vast majority of dollars allocated to physician and non-physician professionals (e.g., physician assistants, nurse practitioners and certified nurse midwives).
Policymakers also allocated $40 million one-time MCO tax dollars in 2026-27 to strengthen and support the development and retention of the Medi-Cal workforce. This amount reflects a decrease in health care workforce investments that state leaders made in the past. More substantial and sustained investments are necessary to build a health care workforce that can better meet the needs of Californians.
This MCO tax spending plan would be overturned if voters approve Prop. 35.
How does Prop. 35 differ from the current MCO tax plan?
Prop. 35 proposes a major shift to how state policymakers have used MCO tax revenue to essentially reduce, or offset, General Fund spending on Medi-Cal. If passed, Prop. 35 would overturn the current MCO tax spending plan that policymakers agreed upon in the 2024-25 budget.
Prop. 35 would require the California Department of Health Care Services to request federal approval for the MCO tax on an ongoing basis in an attempt to make this funding stream more permanent. Federal approval is required for the state to levy health care taxes that draw down additional federal dollars.
While Prop. 35 provides some flexibility for the state to structure future versions of MCO tax proposals to comply with federal regulations and ensure federal approval, it does set limits to the tax on commercial enrollment. This limitation could affect the state's ability to secure future approval for a tax that generates the same level of revenue as the current tax. The measure also specifies that the MCO tax would not go into effect if the state does not receive federal approval and federal funding in the future.
Additionally, Prop. 35 would establish rules for how MCO tax revenue would be spent in the short term (2025 and 2026) and long term (2027 and beyond). The key difference is that policymakers would no longer be able to use the bulk of the dollars to offset General Fund spending in Medi-Cal. Another notable difference is that Prop. 35 would require funds to be spent by the end of each calendar year or fiscal year, beginning 2027. Currently, policymakers have the flexibility to save funds for future years to help cover costs if the MCO tax is not approved in the future.
If passed, funds would first cover a portion of MCOs’ cost of the tax as well as administrative costs.
For calendar years 2025 and 2026, $2 billion would be used to offset General Fund spending in Medi-Cal. Specifically, this amount would cover a portion of the non-federal share of Medi-Cal managed care rates for health care services for children, adults, seniors, and people with disabilities. This represents the majority of funds (about 43%), as shown below. MCO tax revenue would also support health workforce initiatives, including primary care, specialty care, and emergency care.
For calendar year 2027 and beyond, Prop. 35 would allocate revenue from the MCO tax differently. After covering a portion of MCOs’ cost of the tax as well as administrative costs, the next $4.3 billion collected from the tax would be allocated for specific purposes. The majority of funds (44%) would support access to primary care and specialty care. Specifically, it would increase reimbursement rates for primary care services and increase the number of specialty care service providers. A smaller portion of funds would support other rate increases, such as emergency department services and family planning. Prop. 35 would allow the Department of Health Care Services to allocate 8% of funds — $344 million — to provide overall support to the Medi-Cal program.
If there are remaining MCO tax revenues after these funding allocations are made, the measure contains parameters to allocate the excess revenue. Examples of these other allocations include:
Additional General Fund offset to support existing services in Medi-Cal.
A grant program to expand the number of community health workers.
Supporting the state’s ongoing efforts to reduce the cost of prescription drugs.
Providing additional funding to health workforce initiatives.
In addition, Prop. 35 would establish oversight and accountability measures, requiring the state controller to perform independent financial audits. It would also create an advisory committee that would provide input to the Department of Health Care Services on future MCO tax proposals. This advisory committee would be made up of mostly health care provider representatives.
Would Prop. 35 actually make the MCO tax permanent?
No, the MCO tax funding structure under Prop. 35 is entirely dependent on federal approval and ongoing renewals. Prop. 35 would require the California Department of Health Care Services to request federal approval for the MCO tax on an ongoing basis in an attempt to make this funding stream more permanent. Federal approval is required for the state to levy health care taxes that draw down additional federal dollars.
One issue with Prop. 35 is that the MCO tax may not be a sustainable, long-term funding source. While the federal government has historically approved California’s MCO tax, it has indicated that it may revise the rules governing state MCO taxes in the future, which would have implications for the amount of net revenue that future versions of the tax may bring into the state.
Without federal approval and federal funding, the MCO tax and spending plan under Prop. 35 would not be implemented.
How would Prop. 35 impact the state budget?
While Prop. 35 would ensure more funding is dedicated for health care, its requirement to spend MCO tax revenues on specific services would also limit policymakers’ flexibility in making budget decisions. This is particularly concerning in years when the state is facing a budget shortfall because the reduced flexibility could lead policymakers to make cuts to other critical public services to balance the budget.
State leaders are required to balance the budget each year, and there are already several strict requirements on how some state funds are spent that make budgeting complex. By creating additional mandates on state spending, Prop. 35 would result in policymakers having even less flexibility in making budget decisions. While the measure gives policymakers some ability to modify the structure and uses of the MCO tax, changes would require a three-fourths vote in the Legislature — which can be difficult to obtain — and would need to further the purpose of Prop. 35.
In years when the state is facing a budget shortfall, this limited flexibility could result in cuts to other critical public services that help Californians make ends meet and address vital needs, such as income supports, subsidized child care, food assistance, and investments in reducing homelessness and increasing affordable housing.
Of course, cuts could be limited or avoided during budget deficits if state leaders are able to raise new revenues to address a shortfall. However, the state Constitution requires a two-thirds vote in the Legislature to raise taxes, while spending cuts can be approved with a simple majority, and state leaders have generally been more inclined to make cuts than to increase taxes.
In the near term, Prop. 35 would result in the recently enacted 2024-25 budget being out of balance. This is because a solution to the budget shortfall involves using some MCO tax dollars that were previously intended to support provider rate increases and other augmentations to instead offset General Fund spending on existing Medi-Cal services. Since Prop. 35 would require MCO tax revenues to be used for health program augmentations instead of offsetting existing spending, state leaders would have to identify other solutions — potentially spending cuts or delays, revenue increases, or additional budget reserve withdrawals — in next year’s budget to cover the difference. The Legislative Analyst’s Office estimates that the General Fund impact would be between $1 billion and $2 billion in 2025 and 2026, but in a legislative hearing on August 13, 2024, the Department of Finance noted that it estimates the impact could range from $2.6 billion and $4.9 billion in fiscal years 2024-25 through 2026-27.
In the long term, raising state General Fund revenues — through sources aside from the MCO tax — would help to increase the state’s capacity to cover the costs of existing Medi-Cal services and improve state health services and increase access to care, without jeopardizing other state services. This is especially important given that there is no guarantee the federal government will continue to approve an MCO tax that yields the amount of revenue anticipated from the currently authorized tax.
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How would Prop. 35 impact Californians?
If passed, millions of Californians who receive health care services through Medi-Cal — about half of whom are Latinx — could have better access to care, especially for primary care and specialty health care services. Increasing provider participation in Medi-Cal is critical to improving access to a wide range of health care services, especially in historically underserved areas where there is often a shortage of providers. By increasing the number of providers in the Medi-Cal network, patients can receive more timely care, which can help improve health and well-being for all Californians, but especially Latinx communities.
However, there are some critical health equity investments that are included in the current MCO tax spending plan that are either not included or not prioritized in Prop. 35. Examples include:
Implementing continuous coverage for children from birth to age five.
This would allow children to keep their Medi-Cal coverage without any administrative renewals or disruptions from birth to age five. Consistent and timely access to preventive and primary care services is especially important for children’s health and development. Coverage disruptions are not only harmful to health, but research suggests that Black and Latinx people are more likely to be impacted.
Raising rates for community health workers.
These are frontline public health workers who help patients access health and social services. This workforce supports patients in a way that is linguistically and culturally responsive to their communities, including immigrant communities and people of color. While state leaders have taken steps to integrate community health workers into the Medi-Cal workforce, additional ongoing investments are needed to ensure that they are paid fair wages.
Investing in long-term supports for children with complex medical needs, older adults, and people with disabilities.
This includes private duty nursing, community-based adult services, and congregate living health facilities. These services provide medical care and assistance with daily living activities, which is essential for people’s quality of life.
These potential cuts raise health equity concerns, as they would disproportionately impact people of color, children, older adults, and people with disabilities. Policymakers should explore alternative revenue-raising measures to sustain and advance these crucial health equity initiatives, if Prop. 35 passes.
Additionally, Prop. 35’s limitations on using MCO tax proceeds to offset General Fund spending on current Medi-Cal services could make policymakers more likely to make cuts to other state services when facing budget shortfalls. Such cuts would likely harm Californians with low incomes most. For example, in the difficult budget years during and following the Great Recession, deep cuts were made to safety net programs such as subsidized child care, income supports for families under the California Work Opportunity and Responsibility to Kids (CalWORKs) program, and income support for older adults and people with disabilities under the Supplemental Security Income/State Supplementary Payment (SSI/SSP) program.
Lastly, the passage of Prop. 35 would lock in spending decisions in the future, which would impact how Californians engage with the state budget process. Advocates and community members would have less opportunity to weigh in on how state resources should be allocated because the MCO tax spending decisions would be constrained by the ballot measure. Currently, Californians can contribute to conversations about how MCO tax revenue should be spent during the budget process via public hearings and interactions with policymakers.
What are arguments for and against Prop. 35?
Supporters of Prop. 35 believe the measure will protect and enhance access to care for Medi-Cal patients by ensuring that MCO tax dollars are directed toward patient care. They argue that it would prevent lawmakers from redirecting funds intended for health care to other purposes. Key supporters include the California Medical Association, Planned Parenthood Affiliates of California, the California Hospital Association, the California Primary Care Association, and the California Dental Association.
Opponents of Prop. 35 argue that the measure would reduce flexibility in how Medi-Cal dollars are allocated and overturn the commitments made in the 2024-25 budget to fund important services with MCO tax dollars, including continuous Medi-Cal coverage for young children and the rate increase for community health workers. Opposition groups include The Children’s Partnership, the California Pan-Ethnic Health Network, the California Alliance for Retired Americans, Courage California, and the League of Women Voters of California.
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