The 2025-26 Budget: Health Care Access and Information

2025-26 BUDGET The 2025-26 Budget: Health Care Access and Information GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2025 SUMMARY The Governor proposes providing the Department of Health Care Access and Information (HCAI) $207 million General Fund ($581 million total funds) in 2025-26, a majority of which is one time. This amount includes funds for a proposed new initiative to provide free diapers to Californians. We find several weaknesses with this proposal, including that it is not well targeted and that key details remain conceptual. If expanding access to diapers remains a high priority for the Legislature, we recommend it build upon existing programs that are better targeted and pose fewer implementation challenges. For example, the Legislature could increase the California Work Opportunity and Responsibility to Kids (CalWORKs) diaper assistance subsidy or further support the state’s existing diaper banks. We also provide an implementation update to HCAI’s CalRx program, identifying initial successes but also raising three key issues to keep apprised of in the coming years. OVERVIEW In this section, we provide background on HCAI legislation expanded the department’s scope to and summarize the Governor’s proposed budget include health care affordability issues. It also for the department. reorganized and expanded the department’s pre-existing activities around health care workforce Background planning and development. Department Has Several Key Responsibilities. Department Is Supported by Many Fund One of several health departments overseen by Sources. Reflecting its varied mission and the California Health and Human Services Agency, activities, HCAI’s budget is supported by several HCAI has a number of responsibilities. These sources of funding. For example, HCAI assesses include: (1) promoting health care access and fees on health care facilities, which are collected affordability, (2) overseeing state health workforce in special funds. These funds support HCAI’s issues, (3) regulating the design and construction regulation of facilities, data collection activities, of certain health care facilities, (4) insuring loans and other programs. Most General Fund support for nonprofit health care facilities, and (5) collecting for HCAI has focused on health care workforce and healthcare data. In 2024-25, the department has affordability programs. In 2024-25, the department 757 authorized positions to manage operations and is receiving $684 million, of which $484 million administer programs. (71 percent) comes from General Fund support. State Recently Reorganized Department. (As we note later, this proportion is distorted by a For many decades, the department was known substantial amount of unspent carryover funds from as the Office of Statewide Health Planning and previous years. Excluding these carryover funds, Development. Chapter 143 of 2021 (AB 133, General Fund support is 27 percent of spending Committee on Budget) changed the department’s in 2024-25.) name to HCAI and expanded its mission and operations in several ways. For example, the www.lao.ca.gov 1 2025-26 BUDGET General Fund Support Has Expanded in being spent over multiple years, resulting in a Recent Years. Prior to 2017-18, the department large amount of carryover funds. Following its (then known as the Office of Statewide Health reorganization into HCAI, the department’s budget Planning and Development) did not receive General also has expanded somewhat to support new Fund support. Instead, special funds supported health care affordability activities. As Figure 1 its various activities. Since 2017-18, the state shows, this General Fund support has notably has provided General Fund support for certain increased HCAI’s budget. limited-term initiatives. Many of these funds are Governor’s Budget Proposes Spending Figure 1 Increases, Excluding Carryover HCAI’s Budget Has Grown Over Time Funds. The Governor’s budget includes $207 million General Fund (In Millions) ($581 million total funds) for HCAI in 2025-26. As Figure 2 shows, while $700 this amount technically reflects a 600 reduction over the revised 2024-25 500 level, HCAI’s substantial carryover 400 funds skew this trend. When 300 excluding technical carryover, 200 General Fund HCAI spending increases across 100 Other Funds most fund sources, including General Fund support. 2014-15 2016-17 2018-19 2020-21 2022-23 2024-25 HCAI = Department of Health Care Access and Information. Figure 2 Excluding Carryover Funds, Spending Increases Across Several Fund Sources HCAI Budget (In Millions) Change From 2024-25 2024-25 2025-26 Revised Proposed Amount Percent Funding General Fund Ongoing/one time $73 $207 $134 183.5% Carryovera 411 — -411 -100.0 Totals $484 $207 -$277 -134.1% Other Funds Reimbursements $18 $189 $171 952.0% Hospital Building Fund 77 79 3 3.4 California Health Data and Planning Fund 53 49 -4 -8.2 Behavioral Health Services Fund 8 31 23 284.7 Opioid Settlements Fund 24 — -24 -100.0 All other funds 19 26 7 34.5 Totals $200 $374 $174 46.6% Grand Totals $684 $581 -$103 -17.7% a Reflects carryover of unspent one-time appropriations from previous years. HCAI = Department of Health Care Access and Information. 2 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Handful of One-Time Items Increase General Figure 3 Fund Spending. Most of the increase in General Fund spending in 2025-26 (excluding carryover One-Time Initiatives Drive Up funds) is driven by a handful of one-time items. General Fund Spending As Figure 3 shows, the largest of these items HCAI General Fund Changes (In Millions) is related to a new behavioral health workforce initiative. (This funding—connected to a new One Time package of behavioral health-focused initiatives—is Local Assistance Behavioral health workforcea $66.6 offset by federal funds budgeted in the Medi-Cal New CalRx manufacturing facilityb 50.0 program. The funds appear as a General Fund California Medicine Scholars Programc 2.8 increase in HCAI’s budget, but is a net zero State Operations across the state’s entire General Fund budget.) Health Care Payments Databased $9.0 A handful of new proposals also impact spending, Diaper access initiative 7.4 including a proposed new diaper access initiative. Other 0.8 Total $136.6 The much smaller ongoing increase primarily Ongoing supports higher rental costs associated with State Operations HCAI’s relocation to a new building. Relocation rent adjustment $0.8 Behavioral Health Workforce Initiative Other operations 0.1 Drives Non-General Fund Spending Increase. Total $0.9 The new behavioral health workforce initiative a Part of federally funded Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) also is the main driver of increased non-General initiative. According to administration, General Fund amount is offset by federal funds in Medi-Cal’s budget. Fund spending at HCAI. In December 2024, the b Originally appropriated in 2022-23 budget. Deferred to 2025-26 as part state received approval for a new Medi-Cal waiver of 2024-25 budget. called the Behavioral Health Community-Based c Third year of five-year spending plan. d Reappropriation. Organized Networks of Equitable Care and HCAI = Department of Health Care Access and Information. Treatment (BH-CONNECT). This waiver includes $1.9 billion over four years for behavioral health A majority (47) of these positions are related to the workforce initiatives at HCAI. The initiative primarily full implementation of the Health Care Payments is supported by federal Medicaid funds, with a Database, which collects encounter and claim much smaller amount of support coming from the data from health care payors. These positions Behavioral Health Services Fund. previously were limited term; the budget proposes Adds Many New Positions, Mostly Related making them permanent, as envisioned when the to Health Care Payments Database. Under Legislature established the database in the 2018-19 the Governor’s budget, HCAI’s staffing consists budget. Most of the remaining new positions of 825 positions, an increase of 68 positions implement previously enacted legislation. (8.9 percent) over the revised 2024-25 level. DIAPER ACCESS INITIATIVE In this section, we analyze the Governor’s Background proposed diaper access initiative. We first Paying for Diapers Can Be Challenging for provide background on diaper-related issues. Low-Income Households. Households face many Next, we describe the Governor’s proposal. cost pressures related to their infants. One such We then assess the proposal and provide cost is diapers, particularly for newborn babies. associated recommendations. We understand from limited information that the cost of diapers can be as much as $100 each www.lao.ca.gov 3 2025-26 BUDGET month (or more than $1,000 each year) for an State policymakers have been interested in infant. These costs can be particularly challenging expanding coverage, given Medi-Cal’s broad for low-income families. In a 2023 national coverage of children in California (around survey, nearly half of families with infants reported 40 percent of births), the potential health benefits struggling to cover the cost of diapers. A majority to infants from ensuring access to diapers, of families reporting hardship were low income, and the potential to offset a portion of costs with a smaller share of higher-income families using federal Medicaid funds. As part of the reporting difficulty. Supplemental Report of the 2023-24 Budget Some State Programs Help Low-Income Act, the Legislature directed the Department of Families With Diaper Costs. There are many ways Health Care Services (DHCS) (which administers California supports low-income families with infants, Medi-Cal) to develop options to get Medi-Cal including by providing cash assistance (such as coverage of diapers for infants three years old and CalWORKs), food and nutrition assistance (such younger. The department’s analysis (which was as CalFresh), health coverage (such as Medi-Cal), presented to staff but not published, as directed and child care. Most of these programs, however, by the Legislature) provided a wide range of do not target assistance specifically for the cost estimated costs, depending on how the benefit of diapers. As an exception, the state recently has would be implemented. While no action was targeted support for diapers using two programs: subsequently taken, since then, two other state Medicaid programs (in Tennessee and Delaware) • Cash Assistance for Low-Income Families. have obtained federally approved waivers for limited CalWORKs provides cash assistance coverage of diapers for infants. (around $1,000 each month, depending on family size and income) and supportive Proposal services to low-income households (over Creates New Diaper Initiative, With Two 350,000 households in 2024-25). In 2017, the Phases. The Governor proposes to create a new Legislature added to this cash assistance a initiative to assist all families in California with the $30 monthly allowance to help pay for the cost of diapers. According to the administration, cost of diapers (Chapter 690 of 2017 [AB 480, the new initiative would aim to make diapers more Gonzales Fletcher]). The additional assistance affordable, improve access to diapers, and mitigate is available to each child under the age of infant health risks associated with limited diaper three years old. The benefit, which has not access. The initiative contains two key phases: been adjusted for inflation since its inception, supports around 50,000 children, at a cost of • Phase 1: Three-Month Supply of Diapers $18 million in 2024-25. for All Newborns. In the first phase, the state would work with a private partner to purchase • Food Banks. California has a number of a three-month supply of diapers (400 diapers) private, nonprofit diaper banks, consisting of for each newborn baby in California. food banks and other providers that offer free The diapers would be available to families for diapers to low-income families. These banks free. The department envisions distributing are supported by several sources, including diapers to households through hospitals private donations. The state also periodically that voluntarily participate in the initiative. has provided one-time General Fund support However, the department also emphasizes for these banks—most recently, $9 million that it plans to work out key implementation in 2024-25. details, including distribution, with the private State Also Has Explored Adding Diaper partner. As part of this effort, the department Coverage as Medi-Cal Benefit. Like most state has already initiated a nonbinding request for Medicaid programs, Medi-Cal (which covers information from potential partners. health care for low-income people) generally does not cover the cost of diapers for infants. 4 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET • Phase 2: Market Intervention to Lower Costs. Assessment In the second phase, the state would explore Initiative Is Not Well-Targeted, Likely Limiting a new commercial distribution model to lower Impact. In aiming to cover diaper costs for all costs for the remaining months of diapers. Californians, the administration proposes to provide According to the administration, it envisions a a small benefit to a large population. Such an mechanism that will enable the state to leverage approach differs markedly from many other state its purchasing power and directly negotiate financial assistance programs, which aim to provide for the price of diapers. The state would begin greater benefits to smaller groups of financially needy exploring how this mechanism works through households. For example, while small on a monthly a request for information in fall 2025, with basis, CalWORKs’ diaper subsidy provides eligible implementation potentially beginning in 2026-27. low-income families with support up until the child Establishes Two-Year Pilot… From discussions is three years old. This approach better maximizes with the administration, we understand that this impacts, because more support is targeted to those new program is intended to be ongoing, with both who struggle the most financially. Moreover, while the phases working in tandem. In the proposal before the administration says it plans to prioritize equity during Legislature, however, the administration provides just the initial ramp-up years, it is uncertain whether such two years of funding. As Figure 4 shows, this plan an approach would adequately target California’s includes costs mostly for the first phase, ramping up lowest-income households. Without better mechanisms to covering half of all births in California by 2026-27. in place to target resources to the neediest households, The department indicates that it is exploring using the Governor’s proposal likely would have relatively equity-based metrics to prioritize distribution, such limited impact on diaper access and affordability. as by partnering first with safety-net hospitals. Proposal Poses Challenges Around The requested funds also include one-time support for Distribution… At the time of our analysis, we the start of the second phase. With only two years of understand key aspects of this proposal to still be funding included, the administration has characterized somewhat conceptual. This conceptual plan poses this proposal as a pilot, enabling the state to evaluate outcomes before Figure 4 further ramping up funds. Proposed Spending Plan Only Covers …With Long-Term Funding Plan Two Years of Costs to Be Determined. To sustain this Proposed Plan for Diaper Access Initiative initiative long term, additional funds beyond 2026-27 would be needed. 2025-26 2026-27 This includes funding to ramp up Key Inputs for Phase 1 coverage of three months of free Births diapers to 100 percent of households Number covered 100,000 200,000 (phase 1), as well as administrative Approximate percent of births in state 25% 50% costs to begin the new commercial Diapers Number provided 40 million 80 million distribution model (phase 2). Number per birth 400 400 The administration has not provided Hospitals a comprehensive estimate of these Number participating 100 200 long-term costs. However, using the Spending (In Millions) administration’s cost assumptions, Phase 1 we estimate that universal access to Manufacturing cost $3.8 $7.6 three months of free diapers (Phase Other related costs 2.4 3.8 1) could cost between $20 million and Other $30 million General Fund annually. State operations $0.7 $1.1 Phase 2 request for information 0.5 — Totals $7.4 $12.5 Phase 1 = plan to provide three months of diapers to all California families with newborn babies. Phase 2 = plan to pursue new market distribution model to lower price of diapers. www.lao.ca.gov 5 2025-26 BUDGET challenges and uncertainties. Most importantly, the If a Priority, Pursue Alternatives to administration’s plan to distribute diapers through Administration’s Proposal. To the extent the hospitals raises many questions. For example, it is Legislature wishes to expand access to diapers in this uncertain whether nearly all hospitals with maternity year’s budget, we recommend it pursue approaches wards would voluntarily store large inventories of that build upon the state’s existing programs. Taking diapers to distribute, as the administration’s plan such actions would better target limited resources to appears to assume. For births occurring at hospitals low-income households and provide more certainty that do not participate, it is unclear how the state around implementation and cost. Below, we offer would connect families to their three-month diaper two key options that could be taken separately or allotment. Similarly, it is uncertain how the state would in tandem: reach families where the birth occurs in a nonhospital • Increase CalWORKs Subsidy. The Legislature setting, such as a birthing center. could increase the CalWORKs diaper subsidy, …and Cost. It also is uncertain whether the which already is targeted to low-income families. proposal’s anticipated low costs are realistic. We estimate every $1 increase in the monthly On paper, the proposed initiative purchases hundreds subsidy would cost around $600,000 annually. of millions of diapers for Californians at relatively low • Provide More One-Time Support to Diaper cost. The administration plans to accomplish this Banks. The Legislature could allocate more plan through bulk purchasing, thereby achieving funding for diaper banks to acquire and lower costs (less than $0.20 per diaper) than current distribute diapers. Much like the first option, this market prices. The department indicates it projected approach likely better targets diaper access costs after initial discussions with manufacturers. to low-income households. This option also With limited public information available on would leverage an existing distribution model, manufacturing costs, however, we are not able to providing greater likelihood that the initiative independently validate these anticipated costs. would be successful. Moreover, diaper banks Moreover, because the department has not finalized also engage in bulk purchasing, potentially plans for distribution, there is risk that program costs providing much of the same price-reducing could be higher than assumed. effects envisioned by the administration. Proposal Lacks Plan for Legislative Oversight. Consider Pursuing Other Long-Term Options. Though conceptually a two-year pilot program, To the extent the Legislature would like to pursue the proposal does not include any plans to report longer-term ways to improve diaper access and outcomes to the Legislature. Without such a plan, the affordability, we recommend it take actions in this Legislature would risk having inadequate information year’s budget. For example, the Legislature could to assess whether to further ramp up the initiative in adopt supplemental reporting language directing the future. HCAI to report back on potential market interventions, Recommendations following HCAI’s exploratory work in fall 2025. The Legislature could then make better informed Weigh Expanding Diaper Access Against decisions, to the extent HCAI’s exploratory work Priorities in Light of Fiscal Constraints. As we have yields promising options. In addition, the Legislature noted in recent publications, the General Fund has could resume its work with DHCS to pursue federal little capacity to pursue new initiatives, particularly waiver authority for Medi-Cal coverage of diapers ongoing ones. This is because the state faces future for infants. In pursuing Medi-Cal coverage, the deficits down the road that will require actions to Legislature would want to ensure it understands the address, such as increasing taxes or reducing potential benefit, cost, and likelihood of obtaining spending. As such, the Legislature likely will want federal approval. to be cautious in adopting new proposals, funding those that are at the top of its policy agenda. We therefore recommend the Legislature carefully weigh expanding access to diapers against its many other fiscal priorities. 6 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET CALRX In this section, we provide: (1) background on of commercial health plan fee-for-service claims prescription drug costs and the CalRx program, and in 2021, they comprised a majority of spending. (2) an implementation update on CalRx. Costs also are higher for consumers, with average out-of-pocket costs more than four times the cost Background for brand drugs than generics. A substantial share of Prescription Drugs Have Been a Key Driver of spending on brand drugs was concentrated among Health Care Costs. Prescription drugs comprise a handful of relatively expensive drugs. more than 10 percent of personal health care …Though Data Limitations Complicate spending in the U.S. and California. Historically, Comparisons. The prescription drug market prescription drug prices have tended to grow involves a complex and opaque system of payments faster than prices for overall consumer goods and players, complicating assessments of drug and services. As Figure 5 shows, however, as prices. One key issue is rebates—negotiated measured by the consumer price index, prescription drug cost Figure 5 inflation has slowed over the past 50 years. While drug inflation Prescription Drug Inflation Has Slowed Over Time has tended to exceed overall Annual Change in Consumer Price Index inflation, this trend reversed in the last few years. Many factors 14% likely helped control drug inflation 12 Prescription Drugs over time, such as growing use 10 of generic drugs (described more 8 in the next paragraph). While Overall Goods and Services 6 inflation has slowed, drug prices 4 vary considerably, with some 2 drugs orders of magnitude more expensive than others. -2 Brand Name Drugs Tend to 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019 2024 Cost Much More Than Generic Drugs… Companies that develop and patent new drugs have Figure 6 exclusive rights to sell their product for a limited period of time. Once Brand Drugs Are Disproportionate Share of Spending this time expires, other drug makers Commercial Health Plan Fee-for-Service Drug Claims and Spending in 2021 can produce and sell their own generic versions of the drugs. Patent-protected, brand name drugs tend to be significantly more expensive than generic versions. This is because (1) generic drugs often do not require the same level Prescription Drugs Spending 101 Million $13 Billion of research and development to go to market and (2) entry of generic drugs creates market competition that drives down prices. As Figure 6 shows, while brand Brand Drugs drugs represented a small share Generic Drugs www.lao.ca.gov 7 2025-26 BUDGET discounts that drug makers pay to health plans after reduced this amount to $25 million, reflecting drugs are purchased. Rebates help health plans updated available Opioid Settlements mitigate the high cost of drugs, and brand drugs Fund resources. likely come with higher rebates than generic drugs. However, limited information is available on rebates, Implementation Update as these arrangements often are confidential. As a Insulin Initiative Has Private Partner. result, analyses on drug costs often exclude the In February 2023, HCAI executed a contract with impact of rebates (including the prescription drug a nonprofit drug maker (Civica Rx) to produce a claims and spending data described in the previous biosimilar insulin product. Adopting a public-private paragraph). Moreover, because of many players partnership, HCAI is committed to pay the partner involved in the prescription drug market, consumers up to $50 million for meeting specified project may not always benefit from the savings generated milestones. The contract also grants other specific by rebates. oversight mechanisms, such as giving HCAI In 2020, State Created CalRx to Expand representation on the partner’s governing board. Access to Generic Drugs. Over the years, the The agreement extends for a ten-year period state has taken a number of steps to help reduce after the first commercial sale of the new product. the cost of prescription drugs in state programs and According to HCAI, the partnership will produce to consumers. One key step was the creation of the three generic insulin products, with insulin glargine CalRx program at HCAI. Established by legislation (also known by the brand name Lantus) most likely in 2020 (Chapter 207 of 2020 [SB 852, Pan]), to be launched first. the program aims to reduce the cost of drugs by HCAI Anticipates Substantial Commercial expanding the availability of low-cost generics in the Savings From Generic Product. As part of the market. The program accomplishes this objective agreement, the partner has set a target price for the by entering into partnerships with private entities new product of $30 for each vial or $55 for a pack of to distribute or manufacture generic drugs. Before five prefilled insulin pens. According to HCAI, these entering into these partnerships, HCAI must ensure prices are close to the cost of production. As a they result in savings, address market failures, result, HCAI anticipates these products could result improve patient access, and are viable. in significant savings when they reach the market. Since Inception, Two Key Initiatives Comprise For example, in a 2023 report to the Legislature, CalRx. Since creating CalRx in 2020, the Legislature HCAI projected commercial health plans could save has adopted two key initiatives, described 43 percent on per-enrollee spending on insulin further below. glargine as a result of the new product, even after factoring rebates. (Estimated savings were even • Insulin. The 2022-23 budget provided higher for other insulin products.) For uninsured or $100 million one-time General Fund for a underinsured patients that pay the full price out of partnership to manufacture a biosimilar pocket, HCAI estimated potential savings to be over insulin product. (Diabetics take insulin to help 90 percent. regulate their blood sugar. Insulin is among the costliest drugs for health insurance plans Key Time Lines for Insulin Production and consumers.) Of this amount, one-half Remain Unknown. Because key aspects of the was for the contract with the partner and the partnership are confidential, it is unknown when the other half was to help support the construction new product will enter the market. HCAI recently of a new manufacturing facility in California. reported to our office that manufacturing has The 2024-25 budget later deferred the facility started, though the partner has not received final construction funds to 2025-26. federal approval of the new product. HCAI also indicates that it has reviewed data from the partner • Naloxone. The 2023-24 budget provided on initial tests and studies. Moreover, the partner $30 million one-time Opioid Settlements Fund and HCAI are engaging with wholesalers and for a partnership to produce a generic, over patients to determine distribution. As of our analysis, the counter naloxone nasal spray product. however, HCAI indicated that it could not provide (Naloxone is used to alleviate the effects of an an estimated time line to receive federal approval to opioid overdose.) The 2024-25 budget later sell the product. 8 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Naloxone Initiative Appears to Be Moving more competition. According to HCAI, several at Faster Pace. In February 2024, HCAI entered months after the Naloxone Distribution Project into a contract with a private company (Amneal began using CalRx as the primary supplier, the Pharmaceuticals) for the naloxone initiative. Under program’s previous supplier notably reduced the contract, which extends through the end of 2026, its prices. HCAI attributes this reduction to the contractor is to sell the new over-the-counter the competition created by the new CalRx naloxone nasal spray product at $24 for each twin naloxone product. Whether or not CalRx has pack. The product entered the market in May 2024. broader impacts to consumers, however, will One key reason why this initiative was able to move depend on how available these new drugs are relatively quickly is that it used an existing program to consumers, as well as utilization. to distribute the product. The Naloxone Distribution • How Will the Products Compare to Other Project, which is administered by DHCS, provides Competitors? Since the start of the insulin and free naloxone products by request to hospitals, naloxone initiatives, a handful of other generic schools, law enforcement, and other public and competitors have received federal approval and community-based organizations. In May 2024, the entered the market. Moreover, as part of recent new CalRx naloxone product became the primary federal legislation, Medicare out-of-pocket supplier to this state program, reflecting a 40 percent costs for insulin are capped at $35, just slightly lower rate than the previous supplier. As a result, higher than the $30 cost per vial intended for HCAI estimates the new product has saved the state the CalRx product. These developments could millions of dollars annually. HCAI indicates it plans limit the potential savings effect of CalRx. to launch a direct-to-consumer approach with the However, these issues remain very uncertain. contractor in spring 2025. According to HCAI, many generic competitors With Some Initial Successes Under Its have pursued more traditional high price, high Belt, Three Key Questions Remain on CalRx. rebate models, limiting their affordability to To date, the state has successfully entered into two consumers. Also, HCAI states that it has heard partnerships to reduce the cost of two key drugs. of patients experiencing difficulty accessing One of these drugs has received federal approval and price-capped insulin products. The Legislature resulted in savings to the state, while the other has likely will want to track these market and policy the potential to reduce costs in the private market. developments over time as it assesses the Despite these initial successes, three key questions impact of CalRx. remain about CalRx: Need for Manufacturing Funds Are Uncertain. • When Will the Products Become Available to As adopted in last year’s budget, the Governor’s Consumers? As of this analysis, neither CalRx budget includes $50 million one-time General Fund product is available directly to consumers. to HCAI to help support construction of a new Far less is known around the timing of the manufacturing facility. The funds originally were insulin initiative, as key components remain appropriated in 2022-23, but were later deferred confidential. Selling to consumers is not a to 2025-26 as a budget solution. At the time, HCAI simple task, and key risks remain. For example, indicated that it could defer these funds because generic drugs can struggle to compete with construction of the new insulin product will instead brand drugs, despite being substantially lower occur at an existing site in Virginia. According to cost. This is because brand drugs can come HCAI, a forthcoming report to the Legislature will with large rebates that, on net, benefit health further examine the feasibility of the state engaging plans and their contracted pharmacy benefit more directly in drug manufacturing. With key managers. As CalRx initiatives move further implementation details of the insulin initiative still along, the Legislature likely will want to keep uncertain, the Legislature likely will want to work apprised of their availability and utilization with HCAI to better understand the continued among consumers. need for these funds. If stronger justification is not • Will the New Products Lower Costs to forthcoming, the Legislature could redirect these Consumers? In concept, CalRx aims to offer funds for other one-time budget priorities or further lower-cost drugs to the market, offering less defer them as needed. costly alternatives to consumers and creating www.lao.ca.gov 9 2025-26 BUDGET 10 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET www.lao.ca.gov 11 2025-26 BUDGET LAO PUBLICATIONS This report was prepared by Jason Constantouros, and reviewed by Mark C. Newton and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 12 LEGISLATIVE ANALYST’S OFFICE