SACRAMENTO – During the California Democratic Party convention in Sacramento last weekend, the spiciest news was outgoing chairman John Burton dropping an f-bomb on a group of activists demanding that the party embrace a single-payer health system. It’s not really news when the notoriously foul-mouthed Burton says such things, but the fracas highlighted the pressure party leadership faces to embrace government-run medical care.

Yet the foulest rebuke to advocates for single payer this week did not take place at the convention. It took place nearby at the state Capitol, in the form of an appropriations committee report that found that a single-payer bill working its way through the state Senate would cost more than double the state’s total budget.

Senate Bill 562, which had previously passed the Senate health committee, was placed in the “suspense file” by the appropriations committee on Monday as legislators analyze the huge price tag. They have until the end of the week to move it out of the file, or it will die this year.

The committee made clear the size of the undertaking: “The fiscal estimates below are subject to enormous uncertainty,” it explained. “Completely rebuilding the California health care system from a multi-payer system into a single payer, fee-for-service system would be an unprecedented change in a large health care market.”

The appropriations analysts estimate an annual cost of $400 billion a year, which soars above the projected $180 billion state budget. Of that cost, the committee explained, about half of it would be covered by existing federal, state and local health care funding. That leaves a $200-billion hole, which the committee says could be covered by a 15 percent payroll tax. Even if the calculation includes reduced health care spending by employers and employees, the committee still estimates a $50-billion to $100-billion shortfall.

And, quite significantly, these costs could be understated given the kind of demand that would be created by this system. Its main advocates, Sens. Ricardo Lara, D-Bell Gardens, and Toni Atkins, D-San Diego, view health care as a “human right,” so the system the bill would create would provide nearly unlimited access to medical care. In fact, the Senate health committee report opined that “SB562 will change health care in California from commodity to a right.”

“Under the bill, enrollee access to services would be largely unconstrained by utilization management tools commonly used by health care payers, including Medi-Cal,” according to the committee report. “The ability for enrollees to see any willing provider, to receive any service deemed medically appropriate by a licensed provider, and the lack of cost sharing, in combination, would make it difficult for the program to make use of utilization management tools … . Therefore, it is very likely that there would be increased utilization of health care services under this bill.”

And the committee only is talking about predicted costs. It’s not its job to engage other policy debates, such as those touching on subjects including rationing, waiting lists for services if the demand overwhelms supply and the quality of care. The bill would apply to illegal immigrants, which raise critics’ concerns about the state becoming a worldwide magnet for “free” health care.

The bill is fairly short given the complexity of the subject. But the Mercury News captured the gist of the single-payer approach in a March news article: “Instead of buying health insurance and paying for premiums, residents pay higher taxes. And those taxes are then used to fund the insurance plan — in the same way Medicare taxes are used to provide insurance for Americans 65 and over.”

This bill would put control of health care in the state under the authority of a nine-member panel and essentially eliminate the role of insurance companies – thus replacing them with a government bureaucracy. But the size of the tax bill and state costs even have Democratic Gov. Jerry Brown expressing what the newspaper calls “deep skepticism.”

The analysis makes some other important points. For instance, it’s not clear that the federal government would go along with this, and it is totally discretionary whether the feds would grant the necessary waivers involving Medicare and Medicaid services. The bill’s funding is based heavily on the ability to divert federal funds from those programs.

The analysis also notes, “There are several provisions of the state constitution that would prevent the Legislature from creating the single-payer system envisioned in the bill without voter approval.” In Colorado this past November, voters defeated a single-payer initiative, Amendment 69, with an overwhelming 79 percent to 21 percent “no” vote.

Supporters of the measure claim that it will reduce “waste” by putting all health plans under a single umbrella, thus ending the duplication of multi-plan systems. But critics note that competition is the best way to keep costs low – not putting a system under one giant governmental entity. Advocates see it as a way to ensure proper health care for everyone, but the appropriations report confirms critics’ concerns that such a system could obliterate the state budget and kill job-creating private enterprise because of the high tax bite.

As the Democratic Party protests illustrated, we can expect the debate to become even more acrimonious and obscenity laden as the days go on.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

Penalty warning

The current enrollment period, the exchange’s third since the Affordable Care Act began to be implemented, offered its officials — and allied Democrats — an opportunity to breathe a sigh of relief. After a very rocky start, especially through the federal enrollment process, Obamacare found traction as its parallel expansion of Medicaid coverage gained adherents even among some Republican governors. But even though critics have contended that the evidence suggests Obamacare still faces a cloudy future, Covered California has so far managed to rack up the kind of enrollments capable of keeping it going.

At a recent press conference, top California Democrats touted the state exchange’s numbers to date. “Nearly 1.3 million people have received access to vital treatment at top hospitals through the health insurance program known as Covered California since it launched in January 2014, Democratic Leader Nancy Pelosi announced this week at a press conference held at UC San Francisco,” the university reported.

On the other hand, Peter Lee, the exchange’s executive director, also used the conference to warn residents that penalties for flouting the individual mandate would go into effect, warning Californians to sign up “rather than send a check to the IRS.”

A full court press

The so-called “tax penalty” referenced by Lee, which the Supreme Court authorized to enforce the implementation of Obamacare, has now been expected to “run into thousands of dollars,” according to the Sacramento Bee. To avoid the lower enrollment numbers, riskier pool of insureds, and bad business and political publicity associated with them, Covered California officials went into overdrive this year to keep signup numbers looking respectable enough to keep off critics’ heat. “They’ve spent $29 million on advertising, opened 500 storefronts, beefed up call centers and trained hundreds of health insurance enrollment counselors who speak 12 languages, from Arabic to Vietnamese,” as the Bee reported. “They’ve also rolled through 21 cities in a statewide bus tour to highlight this year’s open enrollment season, projecting the words ‘Enroll Now’ on iconic buildings such as Sacramento’s Tower Bridge and San Francisco’s Coit Tower.”

Covered California was rewarded with an uptick in signups, which, in an apparent irony, created administrative burdens great enough to force the extension. “Friday’s announcement came after a surge of enrollment, which saw tens of thousands sign up for health care plans this week leaving certified enrollers with more applications to file before the deadline Sunday,” the Orange County Register noted. “The extension will help prevent consumers from getting turned away just because they got ‘caught up in a wave of last-minute shoppers,'” as Lee described the situation.

Technical difficulties

Although the federal government did not offer a similar extension through its own web portal for signups, analysts surmised that California faced some problems similar to those that have plagued Obamacare’s online registration process in the past. “In previous years, the federal government was forced to extend the open enrollment deadline because of glitches with its website, long wait times for customers and other technical issues with the enrollment process,” the International Business Times noted.

“This year, California likely faced similar issues, as the California Health Care Foundation found in an analysis that customers frequently struggled to complete online applications, even if they spent hours trying to figure them out.”

Whereas Maryland, another state to extend its deadline, had to contend with customers impacted by the massive blizzard that recently hit the eastern seaboard, California didn’t put forward weather as an excuse, the IBTimes added.

The California Drug Price Relief Act, as it was dubbed, “would impose price controls on prescription drug purchases funded — directly and indirectly — by the state,” as California Healthline reported. “The proposal would mandate that the state pay the same as or less than the rates paid by the Department of Veterans Affairs for prescription drug purchases. California currently pays billions of dollars for prescription drugs — both directly, such as for prison health care, and indirectly, such as for Medi-Cal and CalPERS managed care plans.”

Pharmaceutical companies swiftly rallied in opposition to the would-be law, reaching into their pockets to fund messaging around what they call its misleading pitch to voters. “It will increase the prices of prescription drugs sold to veterans and many California consumers and will reduce the number of drug choices available to Californians all while costing taxpayers millions more in state bureaucracy and lawsuits because it will be virtually impossible to implement,” said Kathy Fairbanks, spokeswoman for the campaign, according to the Sacramento Bee.

Spiraling expenses

The Golden State has not been alone in struggling with drug affordability. Nationwide, over the past decade, even the cost of common drugs has outpaced the rate of inflation. “Prices rose faster than inflation for 22 percent of top generic drugs reviewed between 2005 and 2014,” Modern Healthcare reported, citing a recently released report authored by by the Office of the Inspector General at the Department of Health and Human Services. “Had those generic drugs been subject to the same requirement that branded drugs face — where manufacturers pay additional rebates to Medicaid when the price of a drug increases faster than inflation — Medicaid would have pulled in $1.4 billion in rebates for the top 200 generic drugs.” CalPERS drug expenses would be included in the rates the CDPRA would try to push down.

OIG had issued its report in response to an inquiry by Congress into the way rising drug prices had affected budgeting in both Medicaid and Medicare, Modern Healthcare noted. But OIG held off on drawing any policy conclusions, “noting that that the two-year budget deal recently passed by Congress would extend the rebates to generics starting in 2017,” according to Modern Healthcare. “In a previous, similar report, OIG had recommended CMS consider seeking legislative authority to broaden the rebate program.”

Perverse incentives

Despite the populist appeal of taking on the drug companies, critics have cautioned that some of the same incentives the CDPRA would seek to punish would simply flourish in another, harder-to-tackle form. “The initiative would create an incentive for drug companies to hike the prices they charge the VA given it would have a ripple effect. State officials told Southern California Public Radio that they even don’t always know what the VA pays for drugs,” noted Steven Greenhut at U-T San Diego.

Echoing that concern, Jeff McCombs, a health economist with the Leonard D. Schaeffer Center for Health Policy & Economics at USC, told Southern California Public Radio “that Congress attempted a similar strategy with a 1991 law that required drug companies to give Medicaid the same deep discounts they gave other big customers. But rather than forcing down Medicaid drug prices, the law spurred pharmaceutical companies to raise prices for their other big customers, including the Department of Veterans Affairs.”

Regulators “agreed in principle to a five-year, $6.2 billion waiver for California’s Medicaid program,” California Healthline reported. “That was good news for California health officials, who plan to use the money mainly for Medi-Cal delivery system and payment reforms — the next big steps in implementing the Affordable Care Act.”

As state and federal officials work out the details of the new scheme, the current waiver, set to expire at the end of October, was pushed ahead to a new finishing date of December 31.

Ill health, rising costs

Medicaid has emerged as a centerpiece of the expansion of health coverage contained in the ACA. “Obamacare expanded eligibility for Medicaid, the government health insurance program for the poor, to people up to 138 percent of the poverty line — or about $33,000 for a family of four,” as The Hill reported. “The federal government picks up the entire cost of expansion in the early years.”

While Democrats have touted its growth, Republicans in Washington have questioned its budgetary sustainability. “A report from a federal government actuary in July found that enrollees who are newly eligible under Obamacare’s expansion of Medicaid cost $5,517 per person on average, 19 percent higher than standard enrollees,” noted The Hill.

In California, Medi-Cal cost projections have also raised concerns. “Medi-Cal serves about 12.5 million people — roughly a third of Californians,” Kaiser Health News noted. “Santa Clara County’s Valley Medical Center takes in $150 million a year from the federal government to help fund its safety-net care; Contra Costa County takes in $80 million annually.”

Meanwhile, in a report issued by the Alzheimer’s Association, expenses for state residents afflicted with the disease were seen “to rise nearly 59 percent to close to $4.9 billion annually,” according to the San Francisco Chronicle, with medical advances prolonging the lives of baby boomers identified as a driving factor of the spike. “The state-federal Medicaid program for the poor will take on a growing share of the burden of paying for the care of people with Alzheimer’s and other forms of dementia because average households will not be able to pay the high costs of having in-home caregivers, long-term nursing care and other forms of help[.]”

Another recent study indicated that California obesity rates would also hit Medi-Cal with additional burdens. Published in Health Affairs, it “found that medical care associated with severe obesity cost state-run health programs $8 billion in 2013,” the Los Angeles Times reported. “California’s program for the poor, known as Medi-Cal, took the biggest hit, spending $1.3 billion that year on severe obesity-related care.”

Shifting burdens

Adding to the challenge facing policymakers, the new waiver fell far short of what California had requested. “The original proposal was whittled down from $17 billion to $7.25 billion and finally to $6.2 billion during the negotiations,” KQED News observed. Although state health officials expressed relief and satisfaction once the deal was reached, state negotiators had hoped to settle on the $7.25 billion figure. “Instead of funding five years of care for the uninsured […], the plan only specifies $236 million for the first year. Funding for the next four will depend on an outside assessment of how much hospitals need.”

Unresolved budgetary issues surrounding Medi-Cal have hung heavily over Sacramento this fall. As CalWatchdog reported previously, Gov. Jerry Brown vented his frustration toward lawmakers last month, slamming their inability to restructure a key tax that affects participating health plans:

“Without the extension of the managed care organization tax that I called for in special session,” Brown said in his message explaining his veto of the nine bills, “next year’s budget faces the prospect of over $1 billion in cuts.”

Although California officials insisted that expanding Medi-Cal coverage has been an economic boon, critics and Sacramento Republicans warned that the program’s staggering growth has created a costly, nettlesome problem for a state already strapped with challenges.

The Golden State has seen more than triple the expected enrollment under the Obamacare-authorized expansion of Medicaid, a surge of over 2 million. “Beyond that,” the Associated Press reported, “a record number of people who already qualified for the low-income health program signed up, pushing overall enrollment in the state’s Medicaid program known as Medi-Cal past 12 million to roughly 1 in 3 Californians.”

The boom has kicked costs up by nearly $24 billion. And though the federal government has picked up a big chunk of the additional tab, tax increases have already been put on the table. “California will see costs continue to grow as the federal government reduces its matching rate,” California Healthline cautioned.

The cost struggle

While legislators have crunched the numbers, regulators have labored to understand just how poorly the new health care regime matches up with the demand it has created. In an effort to control costs, California “has relied heavily on managed care insurance companies,” the San Francisco Chronicle noted in a report on the state’s struggles to come with Medi-Cal demand. Under the current approach, California “pays insurers a fixed amount per patient and expects the companies to provide access to doctors and comprehensive care, rather than paying for each medical visit or procedure under a fee-for-service model.”

Trouble has arisen around what happens next. Last month’s state audit of the managed care system revealed that many of those enrolled in an insurance plan effectively can’t get to a doctor. “The California audit found the state didn’t verify that insurers’ directories of doctors were accurate, or that the plans had enough doctors to meet patients’ medical needs,” the Chronicle confirmed. “And thousands of phone calls to an ombudsman’s office — created to investigate complaints — went unanswered every month.”

Political divisions

The challenges have teed up a classic political confrontation in Sacramento, with Republicans wary of directing more tax revenue toward the health care industry in the hopes of incentivizing better coverage and treatment. Gov. Jerry Brown, however, “wants lawmakers to expand the so-called managed care organization tax currently levied on health plans that accept Medi-Cal patients and include most plans regulated by the Department of Managed Health Care,” according to AP. “Doing so, the administration says, would allow California to meet new federal requirements for a broad-based tax and draw matching funds.”

A bill aiming to fulfill Brown’s wishes emerged amid a special legislative session called to confront what analysts say is the $2 billion-plus price tag attached to the Medi-Cal crisis. Democrats have set out to raise a minimum of $1.3 billion for the “doctors, dentists and hospitals that treat Medi-Cal patients, as well as to replace more than $1 billion that will be lost from a health plan tax that no longer complies with federal rules,” as AP reported. 

Cashing in

The Medi-Cal expansion hasn’t put a financial strain on everyone involved on the regulatory side. “Sacramento’s health-care law business is booming as the Affordable Care Act continues to transform the landscape for providers and insurers,” the Sacramento Business Journal noted. “Health reform — and Medicaid expansion in the states that decided to do it — are big business for lawyers. For one thing, the industry is complicated. For another, it’s constantly changing.”

Ian Mickle, a corporate securities lawyer financing hundreds of millions in industry transactions fueled by the expansion, told the Business Journal that a more centralized market controlled by fewer players offered the chance of a windfall. “There’s a lot of consolidation going on and that means a lot of opportunity for growth and economies of scale if you have the infrastructure to do it,” he said.

The findings promised to sharpen the debate over immigration reform and its connection to America’s fiscal and economic health. “Researchers from Harvard Medical School, the Institute for Community Health and City University of New York’s School of Public Health at Hunter College found that in one year alone — 2011 — undocumented immigrants generated an average surplus of $316 apiece for Medicare,” California Healthline reported. “Other Americans generated an average deficit of $106 apiece. Undocumented immigrants contributed $3.5 billion more than they received in care in 2011, according to the study.”

The costs of expansion

Medicare eligibility has expanded dramatically under the Affordable Care Act. Many states have jumped at the chance to accept increased federal dollars to grow the program. Although Republicans are divided, some GOP governors in influential states, like Ohio and New Jersey, have approved the expansions as well. And with the Supreme Court declining to rule against the ACA, policymakers of every stripe have begun to consider its broader budgetary consequences.

According to the researchers’ report, “contributions from undocumented immigrants during the first decade of the century prolonged Medicare’s trust fund solvency by one year.” California Healthline added, “The trust fund is predicted to be insolvent in 15 years.”

Straining the system

California Democrats had pushed to expand Medi-Cal to roughly one million immigrants unlawfully present within the state. But over the course of exacting budget negotiations, Gov. Jerry Brown shrank down the ambitious plan to cover only those 18 years of age and under. The reduced population remained sizable, however. “An estimated 170,000 immigrants 18 and younger could qualify,” noted the Los Angeles Times. “The expansion of healthcare coverage to qualifying immigrant children would begin in May 2016, costing $40 million in the new budget and an estimated $132 million annually after that.”

The development has had a cascade effect in areas with relatively fewer unlawful immigrants. The County Medical Services Program recently authorized health coverage for the undocumented in 35 California counties. Although budgetary constraints have historically prevented such measures, “in recent years the expansion of Medi-Cal and the creation of the state’s health exchange under the Affordable Care Act have dramatically reduced the population it serves, leaving it with about $225 million in reserves,” according to the Sacramento Bee.

For their part, California Republicans have warned that the pace of expansion has already added stresses the health care system can’t handle. During the legislative debate on Democrats’ original plan to cover the state’s unlawful immigrants, “Republican lawmakers opposed the additional assistance, saying there aren’t enough doctors available to cover those people,” as Bloomberg recalled.

“‘There are 12.4 million Californians who depend on Medi-Cal right now that have difficulty accessing doctors and services because our reimbursement rates are too low,’ Senate Republican leader Bob Huff said during a budget debate on June 19.”

According to the state Department of Health Care Services, Bloomberg added, fully one third of Californians are currently enrolled in Medi-Cal.

A unified agenda

Although Medicare and Medicaid differ in how their budgetary burdens are distributed between states and the federal government, California officials have suggested that the case for expanding the one strengthens the case for expanding the other. “While these are two different programs with different funding sources, I think there’s no question that this study lends support to the efforts to extend Medi-Cal coverage to undocumented immigrants,” said California Insurance Commissioner Dave Jones. “I think many of the same points in this research — that undocumented immigrants contribute tax money to support government programs — applies to Medicaid and California’s Medicaid program, Medi-Cal.”

Like the national Obamacare system as a whole, Covered CA has launched successfully, but has yet to set clear expectations for the kind of costs and services that enrollees — and officeholders — will have to contend with.

With Florida now exceeding California in Obamacare signups, some of the pressure is off of Covered CA’s executives to deliver chart-topping numbers to keep the national system afloat.

“Florida’s roughly 1.6 million enrollees include both first time enrollees and some of the nearly 1 million Floridians who enrolled last year,” Fox News Latino reported. “California led the country last year with 1.2 million consumers, but lagged behind this year with a total of 1.4 million — 300,000 fewer than the state’s goal.”

Meanwhile, as The Hill observed, signups nationwide have hit some 10 million — “higher than the Obama administration’s goal of 9.1 million, though meeting that goal is dependent on people paying their premiums.”

Despite the shortfall, Peter Lee, Covered CA’s executive director, called the Golden State’s enrollments “a huge number, a number we’re proud of,” according to The Hill.

The Times also reported Lee saying, “It isn’t so much losing people as getting a better sense of the inflow and outflow on a month-to-month basis.”

According to Times, Lee “explained that last year’s projections for how many people would maintain coverage were too high, which he attributed to people dropping out of the exchange to get insurance at a new job or through Medicaid.”

As CalWatchdog.com recently reported, Medi-Cal — California’s name for its Medicaid program for the poor — has seen explosive growth since the implementation of the Affordable Care Act began.

Competing against itself

Critics have argued that Obamacare has undermined its own state exchange system by pushing enrollees with disqualified private health plans into Medicaid/Medi-Cal. As Dr. Jeffrey Singer noted last year in The Wall Street Journal:

“A recent Boston University/Harvard Medical School study suggests that up to 80 percent of people participating in Obamacare’s Medicaid expansion have been shifted off their private insurance. These patients’ plans — that they liked, and were told they could keep — did not meet Affordable Care Act requirements, and were wiped out. Healthcare.gov offered them Medicaid.”

The practical effect, in other words, was that the Affordable Care Act competed against itself, shifting millions of potential state exchange participants away from plans issued by health care companies and onto government-entitlement care.

Rolling deadlines

Meanwhile, Covered CA executives have begun to discuss the prospect of new signup windows, created to compensate for adverse circumstances facing enrollees and would-be enrollees.

Healthcare.gov, the signup portal bedeviled by failure during Obamacare’s first enrollment period, offered many users more glitches this time around.

The website, IBT reported, “had problems with the income verification portion of the sign-up process, and officials spent about six hours working on the issue before it was fixed. Some state exchanges reported similar issues. Katie Hill, the Department of Health and Human Services press secretary, explained the problem as being due to ‘intermittent issues with external verification sources.'”

That led to deadline extensions in California and across the country. Sunday, Feb. 15, was the Covered CA enrollment deadline. However, due to the problems, for those who already have begun the enrollment process, the deadline was extended another week, to Feb. 22.

Tax penalty

The website glitches presented a special problem because of a late rush among enrollees to avoid the first instance of Obamacare’s so-called “tax penalty” for failing to possess health insurance.

“The prospect of paying a federal tax penalty for being uninsured drove much of the last-minute enrollment, according to California officials, enrollment counselors and insurance agents,” according to the Los Angeles Times. “About 36,000 Californians signed up Sunday compared with 13,000 one day last week.”

Lee, reported the Times, explained his lingering concerns over public uncertainty about the penalty had led him to consider “a special enrollment period for people subject to those federal fines.”

Such a move would put California in line with a broader agenda being pursued by some members of Congress who want the federal government to introduce new signup periods as well.

Mounting woes — from applicant backlogs to outdated regulations — have raised serious concerns among analysts and policymakers.

In part, the challenges facing the Medi-Cal system came about because of administrative changes triggered by the federal Affordable Care Act, or Obamacare. Here it’s called Covered California. As CalWatchdog.com reported, a combination of cuts in federal and state budgetary subsidies boosted provider costs.

“A provision of Obamacare hiked the rates for primary care doctors to the substantially higher Medicare rates for two years, but those increases ended on Dec. 31,” reported the San Jose Mercury News. “A second blow came last month when the state cut the Medi-Cal reimbursement rate by another 10 percent, a reduction approved by California lawmakers in 2011 but delayed in a court battle that doctors ultimately lost.”

But the ACA has made an even greater impact on California’s health care challenges by ballooning the population accessing Medi-Cal benefits. As the Mercury News reported, Obamacare opened the floodgates in Jan. 2014, resulting in 2.7 million more recipients to date.

California’s expanded recipient group now makes up 17 percent of total national Obamacare enrollment, even though California’s overall population is just 12 percent of the U.S. total.

State health officials, according to the Mercury News, have concluded that by the middle of 2016, “more than 12.2 million people — nearly a third of all Californians — will be on Medi-Cal.” Meanwhile, the program already consumes about two-thirds of California state-government spending on health and human services overall.

Budgetary fears

For both Gov. Jerry Brown and Sacramento legislators, these trend lines have raised sharp worries, as McKnight’s news service reported:

“State lawmakers this week said the latest enrollment news is alarming, and that even if a new pending rate request hike goes through, there is concern the state will run out of funding to care for its Medicaid recipients. State Medicaid costs are up 4.3 percent this year while federal share of costs for new enrollees will begin dropping in 2016, according to Gov. Jerry Brown.”

Brown has made an effort to head some costs off at the pass in his budget plan. According to State of Reform, a health-care think tank, “Brown has earmarked $2 billion in total funds ($943.2 million General Fund dollars) to cover mandatory Medi-Cal expansion.”

But pressure to change the budgetary calculus in California’s favor has intensified.

Reducing access

The big picture for Medi-Cal has officeholders and policymakers so nervous because of the ripple effects of increased costs and recipient rolls. State of Reform observed:

“In addition to Medi-Cal primary cuts making it potentially impossible for new patients to find physicians, President Barack Obama’s executive action will make approximately 1 million undocumented immigrants in California eligible for health insurance tax subsidies.”

That has critics warning access to doctors could decrease sharply. In a sobering report issued by the Legislative Analyst’s Office, the impact of the president’s actions was incalculable:

“The benefits received by undocumented immigrants through these programs are almost entirely funded by the state and would therefore result in additional General Fund costs of an unknown amount. The General Fund costs to provide state–funded benefits to this population are unknown at this time.”

With the federal government putting the squeeze on California’s budget, state doctors have become increasingly scarce.

“There are mounting concerns there will not be enough plan doctors to accommodate the enrollment surge,” according to McKnight’s. “One recent study found that only 57 percent of the state’s primary care doctors accept new Medi-Cal patients.”

As a result, increasing numbers of recipients have been winding up in the ER. As the Fresno Bee observed, that transfer of burdens has undermined the claim advanced by Obamacare proponents “that patients with insurance would have primary care doctors to take care of them and less reason to use expensive and overcrowded hospital emergency rooms.”

Although experts have not determined the likely extent of doctors’ unwillingness to treat Medi-Cal patients, California lawmakers have begun to brace for the worst: a substantial budgetary increase that will not be covered by the federal government.

Instead, the higher health tab may have to be absorbed by increased taxes, cuts in other budget areas, or both.

By Katy Grimes

SACRAMENTO — Californa’s desire to be the first state to do everything has never been more evident now that Obamacare has been signed into law.

And California lawmakers haven’t let any grass grow under their feet since passage of the Affordable Care Act in 2010. In January, Gov. Jerry Brown issued a proclamation to convene an extraordinary session of the Legislature to continue the work of implementing the federal Patient Protection and Affordable Care Act.

Obamacare cheat sheet

Under the Patient Protection and Affordable Care Act, also known as federal health care reform, or Obamacare, the state has the option to expand its Medi-Cal Program to cover over one million low–income adults who are currently ineligible.

Unlike some states, which have refused to implement the Obamacare health exchanges, California has embraced the federal health care plan and already began the process of implementation.

This means beginning January 1, 2014, the federal government will pay all of the costs associated with the Medi-Cal expansion, and do this for three years. Beginning January 1, 2017, the federal government will begin to decrease its portion, over a three–year period, until California pays for 10 percent of the expansion and the federal government pays the remaining 90 percent.

That 10 percent portion of the cost could run as much as $1.4 billion annually, according to the Legislative Analyst’s Office.

Currently the counties have the fiscal and programmatic responsibility for the care for the low–income adult population that would be covered by the expansion. The LAO says a statewide program could greatly alleviate the cost to the counties, although the Department of Finance would likely make downward adjustments to counties’ overall realignment payments.

Latest bill

In January, Sen. Ed Hernandez, D–West Covina, Chairman of the Senate Health Committee, introduced two pieces of legislation to comply with the federal Affordable Care Act, which requires the expansion of Medi-Cal coverage. In California this means 1.6 million previously ineligible Californians will be covered. Thursday, the Senate passed SB X1 1, the first of the two pieces of legislation. “This will expand services for the vulnerable population,” Hernandez explained to colleagues in the Senate during debate.

However, Senate Republicans are far more concerned about the economic impacts to the state should the federal government fail to make good on funding.

“This is an attempt to implement Obamacare in California,” said Sen. Jim Nielsen, R-Gerber. “It is not worthy of support today. It is a work in progress, and not ready yet,” Nielsen said of SB X1 1. “It takes California beyond what the federal government requires.”

Nielsen warned that California needs to be very careful with the controls of who is covered under the expanded Medi-Cal coverage. “There needs to be some very hard means testing,” said Nielsen.

Nielsen is concerned for very good reason.

SB X1 1 would usher in the expansion of the state’s Medi-Cal coverage allowed under the Affordable Care Act to low-income adults currently ineligible. This includes those with incomes at or below 133 percent of the federal poverty level, or $14,856 in 2012. This will result in more than 1.6 million new Medi-Cal eligible Californians.

“I have concern for the fiscal impact on the State of California and our treasury,” Sen. Ted Gaines, R-Roseville, also said during Senate debate.

While Obamacare requires mandatory expansion of Medicaid in every state, California is going beyond federal law and implementing Medi-Cal, California’s version of federal Medicaid, to a previously ineligible group – childless, able-bodied adults under 65.

While the Affordable Care Act also required this when it was passed, the U.S. Supreme Court, in its ruling on Obamacare, ruled that this is an option for states.

But California is going to enact this option by changing the income calculation of these childless, able-bodied adults, allowing them to become eligible. The Medi-Cal income calculation used to include an asset test. The California Legislature passed a bill last year removing any asset test.

Eligibility changes

SB X1 1 would also establish a defined health benefits package for enrollees, including the essential health benefits contained in the Affordable Care Act, and enacted into law in California as part of a bill authored by Senator Hernandez last year.  SB X1 1 also includes provisions simplifying the eligibility, enrollment and renewal process for Medi-Cal.

Be wary of the word “simplification.”

This “simplification” of eligibility is complex and wrought with issues. Currently, self-attestation is not allowed. Federal law prohibits citizenship status, and states have flexibility to utilize self-attestation information. Hernandez’s bills require the use of self-attestation – meaning Medi-Cal applicants and renewals won’t have to prove income or even residency, at least on the front end.

Some in the state say this will instead be verified on the back end, but benefits may already be used and paid by the state before verification is even started. There is no doubt this is a program integrity issue.

Design-as-you-go

California is clearly using a design-as-you-go process for adding the 1.6 million additional recipients to Medi-Cal.

Currently, Medi–Cal provides health care services to over eight million qualified low–income persons—including families with children, pregnant women, seniors, and persons with disabilities.

The LAO estimates this expansion “would likely reduce the total amount of uncompensated health care provided in California. In addition to the significant fiscal effects on counties, many health care providers — including private hospitals, clinics and physicians — often provide care for which they receive no direct reimbursement.”

Gov. Jerry Brown

The Governor supports the Medi-Cal expansion in California. However, and to his credit, Brown has offered amendments to the current legislation allowing for “tie-back” language. In case the federal government is unable to pay its portion of Medi-Cal, Brown wants to make sure California is not tied to the mandatory programs. This has some Democrats bristling, but it appears the governor is adamant about having this option available for future administrations.

It’s a “heads I win, tails you lose” case.

By Wayne Lusvardi

Here’s the dirty secret of Gov. Jerry Brown’s Proposition 30 tax increase of $8.5 billion. Most of it would not go to education, as advertised. Instead, it indirectly would go to plugging a gaping budget hole created by the Obama Administration’s policy of taking people off unemployment rolls and putting them on permanent disability benefits. The Obama policy blew a $11.7 billion budget hole in California’s budget.

The Obama Administration’s loosened eligibility requirements for Social Security Disability have swelled the number of those on Medicaid in California.  It is Obama’s relaxed requirements for Social Security Disability — put into place by Obama Administration appointees and coupled with declining federal funds — that is busting the California general fund budget at this time.

Medicaid in California has grown $27.1 to $38.8 billion, an $11.7 billion increase over just the last five years.

From 2007 to 2011, state general fund revenues have gone from $102.9 billion to $92.5 billion, a $10.4 billion decline.

However, federal funds for California have gone from $56.2 billion to $78.7 billion over the same period, a $22.5 billion per year increase.

The total combined general fund and federal fund revenues have gone from $129.1 to $165.3 billion from 2007 to 2012, a $36.2 billion increase.  Federal funds have increased 25 percent over the last 5 years.

TABLE 1.

Trend in Medicaid & K-12 Funding 2007 to 2011 — Billions $ and Percent

Statistics for the number of recipients or amount of expenditures for SS Disability in California for 2012 are not available.  Nonetheless, the state budget for the 2012-13 fiscal year indicates a decline of $30.1 billion in federal funds and a $6.0 billion increase in the state general fund. The net effect on the combined general fund and federal funds is a $24.1 billion decline in total revenues for 2012-13 — see Table 2 below.

No Apparent Need for New Tax for K-12 Education

California population grew from 36,207,622 in 2007 to 37,691,912 in 2011.  This indicates 1,484,290 more people over the last four years, for an annual compound growth rate of less than 1 percent (0.8 percent) per year. Population was over-estimated by demographers by 1.2 million people during the last decade because they expected more people to move in and fewer to move out.

Hispanics represent the largest group of new arrivals.  The number of white children dropped 21 percent in the last 10 years.  As Dowell Myers, a demographer at the University of Southern California, has stated, slow growth will make it easier for state officials to plan in an era of budget deficits.

Concurrently, K-12 education funding increased $5.2 billion from 2007 to 2011.  The percentage of funding out of the general fund for K-12 education rose 18.7 percent.  But that is a statistical fluke due to the total dollars in the annual general fund budget declining by $16.4 billion from 2007 to 2011.

The number of children enrolled in K-12 public education declined over the last five years by nearly 1 percent (0.98 percent), or 61,265 children. It is not apparent that California needs a new tax for K-12 public schools that would equate to about a 9 percent increase in general fund revenues.

Brown’s Tax Increase Would Plug Rising Medicaid Costs

Brown’s 2012-13 state budget is predicated on an expected $8.5 billion in new taxes from Proposition 30 on the November ballot.  It now appears that most of Brown’s tax increase would really have to go toward plugging the increase in Medicaid costs due to Obama’s SS Disability policies.

Brown is claiming that 89 percent of Prop. 30’s funds would go to K-12 schools and 11 percent to community colleges.  But budget line items are fungible or interchangeable.  So by funding $8.5 billion to K-12 schools and community colleges, this frees up an equal amount of funds to be allocated elsewhere — such as to Medicaid.

But Prop. 30 could not be easily sold to the voters if they knew that the tax increase would indirectly go to funding Medicaid. So like in a pea shell game, Brown has switched, to public education rather than Medicaid, the public perception of what shell his $8.5 billion tax is under.

Loose SS Disability Rules Led to Rise in Recipients

The eligibility requirements for Social Security Disability may not be an official policy of the Obama Administration.  But Obama’s appointed program heads have interpreted its policies for nearly three years.  Relaxed eligibility rules have led to a large increase in SS Disability recipients.

According to Forbes.com, the Social Security Administration shifted to placing more weight on self-reported pain, loosened screening of mental illness, and now accepts evidence from the applicant’s own doctor.  Mental illness recipients grew from 16 percent in 1983 to 33 percent in 2010.  Back pain awards grew from 13 to 28 percent.  Over half of SS Disability recipients are considered mentally ill or have back pain.

In 2008, when Obama was elected, there were 7.2 million adults age 18 to 64 on Social Security disability.  By 2011, there were 8.7 million, for an increase of 1.5 million — reflecting a 20.8 percent jump.  Parking 1.5 million formerly employable people on SS Disability has lowered the official national and California unemployment rates. This is a strategy borrowed from former British Prime Minister Tony Blair when he came into office in 1997 to make the unemployment rate look better.

This tactic is helping the image of the Obama Administration by lowering the public perception of the unemployment rate.  But it is ending up busting California’s general fund budget. This fact has been quietly kept under the radar in California up to now.  Voters are more likely to vote for “school children” than those put on disability, with easily feigned mental illness and back pain to cover up a higher unemployment rate than is being shown.

A look at the California state general fund budget from 2007 to 2012 indicates that a $46.7 billion increase in federal funds has mostly plugged the rise in Medicaid costs from 2007 to 2011.  But in 2012-13, federal funds will decline by more than $30 billion.  This will make it difficult to fund an $11.7 billion increase in Medicaid costs resulting from the Obama administration’s shift of the unemployed to the Social Security permanent disability program.

Brown has ended up being a political water carrier for Obama’s policy to artificially reduce the unemployment rate by shifting people to permanent SS Disability, resulting a hole in California’s general fund budget.  The Obama administration should now be compelled to own up to a budget deficit they created and go to the well of the federal treasury rather than the California taxpayer to finance it.

Effect of Obama-Cal Policy on Swing State Elections

Voters in those key swing states in the upcoming national election need to know that it has been the Obama administration’s policies to reduce the perceived unemployment rate in California with an $11.7 billion per year increase in SS Disability payments. Swing states have been subsidizing California to the tune of $11.7 billion over the past 5 years for new lax SS Disability payments for mental illness and back pain may bear on the mental calculation that voters make for who shall be the next president.

TABLE 2:

Medicaid & K-12 Education as Share of State General Fund — 2007 to 2011