California county sales tax measure backfills federal healthcare cuts

Key Takeaways

Santa Clara County, Calif. is staring down over $1 billion in lost annual revenue from federal funding cuts to Medicaid. 

To help mitigate the impact on its economy and public health system, the county is implementing a sales tax, which will raise an estimated $330 million each year to backfill healthcare costs. 

The five-eighths-cent increase was passed by voters last month and will expire in 2031, unless county leaders opt to extend it. 

One in four Santa Clara County families rely on Medi-Cal (the state implementation of Medicaid) and more than 50% of the public health system revenue comes from the social safety net program, according to County Executive James Williams. 

Santa Clara Valley Healthcare, which comprises four hospitals and 15 health centers, is the county’s main public health provider. 

The sales tax will help the public health system “maintain critical and essential healthcare services, ranging from emergency room care to trauma burn to psychiatric services to cancer care,” said Paul Lorenz, CEO of Santa Clara Valley Healthcare. “It’s going to allow us to continue to maintain these essential services that the community really does rely on to a great degree.”

The sales tax can only backfill so much of the funding loss, so the county and health system are working with state agencies and the state legislature on additional funding opportunities, according to Williams. If the state doesn’t provide supplemental funding, there’s going to be a healthcare crisis, he noted. 

“We’re bracing for the worst,” Lorenz said. 

The public health system has also identified around $200 million in budget reduction opportunities and is looking to address an additional $100 million in the next fiscal year, according to Lorenz. 

“While an extraordinary investment by this local community,” Williams said, “it’s only about a third of the gap that we need to address, so a daunting road remains ahead of us.”

New federal Medicaid work requirements, established through H.R. 1, are estimated to result in millions of people across the country losing coverage. Many people who do meet the necessary work requirements will still lose eligibility because of the paperwork, Williams noted. 

In July 2023, Georgia implemented work requirements for Medicaid through its “Pathways to Cover” program, which has spent twice as much on administrative costs as it has healthcare, according to the Government Accountability Office. 

In the first 18 months of the program, 6,500 participants enrolled. The state’s initial goal was to enroll 100,000 people in its first year. 

“We know from the few states that had pretty abysmal pilots of work rules that folks whose eligibility was able to be automatically verified stayed on enrollment at much higher rates than people who could not,” Williams said. 

“… And we know that most of these folks already work, so it’s a question of, ‘Can they jump through the paperwork hoops to keep enrollment?’ not of them actually meeting the criteria.”

When people lose health insurance, they delay seeking treatment, which increases visits to the emergency room, leading to catastrophic health outcomes and increased costs for health systems, Williams said. 

The public health system’s emergency departments already see more than 750 people a day, he noted. 

People waiting until they’re in crisis to seek care isn’t sustainable, so Santa Clara Valley Healthcare is working to provide more community education around primary care and urgent care services, according to Lorenz. 

“It’s, of course, devastating for [Medi-Cal recipients who could lose access] and their families,” Williams said. 

“But, it’s also bad for the economy, it’s bad for our entire community, and it causes ripple effects across the healthcare ecosystem.”

In California, public hospitals make up only 6% of the state’s hospitals but operate more than half of its trauma and burn centers and train nearly half of its doctors. 

Santa Clara County voters passing the sales tax measure is a vote of confidence in the overall public healthcare system, Lorenz said.

“To have that level of support from the community is really important during this difficult time for healthcare in general,” Lorenz said. 

“… For the community to see how we, along with the other hospitals and health systems, are able to work together to provide that full continuum of care and ensure that everyone in the community has access, I think speaks a lot to how we as a health system have developed and grown in the community.”

In recent years, Santa Clara County has helped save three hospitals — two in 2019 that went bankrupt after being acquired by a private equity firm and another earlier this year that was operated by HCA Healthcare. 

The county was able to keep their doors open, integrating them into the Santa Clara Valley Healthcare system, because of its ability to draw on Medicaid funding, Williams noted.

“Now, that funding mechanism has turned things upside down,” Williams noted. “So, what we are struggling to do is have enough runway and draw on enough strategies to try to shift our funding stream, given that Medicaid is more than 50% of the funding for the health system.”

Amid the “unprecedented” withdrawal of federal support, it’s local governments that are tasked with keeping critical services operating, and counties across the country must assess how to do that in their respective communities, Williams said. 

“Those are hard conversations, but the choices are stark,” Williams said. “And for our community, shuttering literally life-saving services was not an option that we were going to take.”

The ability for other counties to replicate the initiative depends on their existing local tax measures, according to Williams. Santa Clara County didn’t have other significant local sales taxes going to the county government, which enabled the Board of Supervisors to put it on the ballot, he noted.

“We are going to do everything we can,” Williams said, “to ensure that that investment and legacy of an incredible public health care delivery system — one that delivers care with excellence and access for the most vulnerable families in our community — is a legacy that we continue here in Santa Clara County.”