'California-care' Funding Problem


NOV. 30, 2010

As California prepares for  national health care legislation, the looming and potentially massive increase in Medi-Cal spending has already begun, and will most likely continue to outpace any growth in the state’s revenues.

Officially called the Patient Protection and Affordable Care Act, “Obamacare” may not be immediately on the horizon, but passage of the federal legislation appears to have given California justification in expanding its own far-reaching health care system.

The Legislative Analyst’s Office reports that total spending for the state’s major health departments has increased from $24.5 billion in 1999-2000, to an estimated $57.8 billion in 2009-2010. This is an increase of $34 billion, or 136 percent, over the 10-year period, and has far outpaced state revenue increases.

The state’s Department of Health and Human Services reports that California will receive approximately $10 billion in federal funds almost immediately “to invest in our health delivery system to prepare for national health care reform.  These investments are also designed to help slow the rate of growth in health care costs within the Medi-Cal program.”

While this sounds reasonable, the LAO states that even with increased contributions from the federal government, the mandated expansion of the definitions of Medicaid eligibility will put significant fiscal pressures on the state, particularly as federal funding is phased out.

Medicaid, the federal-state health insurance program for the poor, and Medi-Cal, the Medicaid program in California jointly administered by the California State Department of Health Care Services and the Centers for Medicare and Medicaid Services, are expanding quickly, according to the LAO.

As explained in the LAO Budget Package spending plan for 2010-2011, $17.6 billion will come from the state’s general fund for state health programs – a 16 percent increase totaling $2.4 billion over the previous budget year spending. Of the spending plan, $12.2 billion is designated to Medi-Cal through local governments, and administered by the Department of Health Services, which is a 20 percent increase totaling $2.1 billion.

Tony Cava, information officer with the Department of Health Care Services, confirmed the increase in Medicaid and Medi-Cal spending, but said the national mandate does not go into effect until 2014. “I’m not sure where the funding will come from,” said Cava. However, by 2014, there shouldn’t be anyone in the state left uninsured. “They will either qualify for Medicaid or Medi-Cal, or can pay in through one of the health insurance exchanges,” which will be created as a result of Obamacare.

A recent study published by the Mercatus Center at George Mason University, analyzed overall national Medicaid growth from 2000 to 2012 using data from the Office of Management and Budget. The study, authored by University of Kentucky economics Professor John Garen, found “in 2010, 48 states grappled with budget gaps that totaled nearly $200 billion. The chief culprit for many states’ financial woes, is Medicaid.”

According to Garen, the OMB estimates that Medicaid will cost $237.7 billion by 2012. While part of this projected spending growth can be attributed to an increase in health care costs and a growing population, most of the cost increase is due to the government’s expansion of what qualifies individuals for Medicaid eligibility.

Currently, federal programs offer at least $1.20, depending on the state, for every dollar put up by the state government. According to Cava, in California, before the federal stimulus funding package, the state was matched only dollar for dollar by the federal government. “Now, after stimulus, we are receiving 11.54 percent more,” explained Cava.

Under the state plan called a “Bridge to Reform,” California will receive $10 billion in federal Medicaid money to extend coverage to an additional 500,000 people who are currently uninsured, and help cover costs to the state’s “safety-net hospitals,” as well as provide coverage for low-income adults not eligible for Medicaid.

California agreed to a waiver of standard Medicaid rules and promised to cut $2 billion per year from the existing Medicaid cost, by streamlining care for its highest-cost recipients: seniors, adults with disabilities and children with severe illnesses. In return, the federal government agreed to give California $2 billion per year in return, for five years.

According to the LAO, through the section 1115 comprehensive waiver, key elements include:

“Expanded Coverage.  The waiver builds on our coverage initiative offering participation to all the counties in the state to cover as many as 500,000 uninsured individuals.

Increased Funding for Uncompensated Care.  The waiver expands the existing Safety Net Care Pool to provided additional support to finance uncompensated care.

Improved Care for Vulnerable Populations. The waiver provides for enrollment of seniors and persons with disabilities in managed care to achieve better care coordination and management of chronic conditions.

Promotion of Public Hospital System Transformation.  The waiver implements a series of improvements in the public hospital delivery system to strengthen their infrastructure and prepare them for full implementation of health reform.”

The LAO warned of huge state operating shortfalls in a November 2009 report, to go along with increases to the Medi-Cal caseload expansion.

Meredith Wurden, a health care analyst with the LAO, said that this year the governor proposed $2.9 billion in Medi-Cal reductions, all of which the LAO supported.

And, putting the size and scope of state health care into perspective, Wurden said, “the California Department of Health and Human Services accounts for 29 percent of the general fund,” a daunting amount of state spending.

National Medicaid enrollment is increasing at an average of 4.2 percent per year according to research done by Mercatus Center policy fellow Matthew Mitchell. Since 2001, 24 states have expanded their eligibility. A table listing the states in Mitchell’s report, shows  California at the top of the list with a $54.6 billion budget shortfall, a 64.5 percent total shortfall percent of fiscal year 2010 budget.

And now, California has two new programs to cover people with pre-existing conditions, as well as high-risk patients, through the Managed Risk Medical Insurance Board.

New health programs may be good news for the uninsured, and high-risk patients, but budget analysts see only future insurmountable budget deficits, without enough funds to support ongoing programs. Cava confirmed this and said, “The Federal government is supporting California now, but the stimulus funding support will end next June.”

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