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On Tuesday, the Speaker of the Assembly introduced his bill which would add 1 million Californians to the Medi-Cal rolls as part of the implementation of Obama Care. The Legislative Analyst Office’s (LAOs) recent Fiscal Forecast published in November 2012 found that Medi-Cal would be one of the fastest growing programs in the budget. The California Budget Fact Check found:
- Medi-Cal General Fund spending will increase by an average of 6.8% for the next 5 years.
- Health care reform is expected to drive Medi-Cal costs up between $3-6 billion over 10 years. Note: The recent Supreme Court ruling gives the state the option not to expand Medi-Cal, which would avoid fast escalating costs.
- Actions being considered by the state will increase administrative costs higher than necessary, draining funding away from the delivery of direct medical services. Case in point, the newly-created California Exchange is considering rerouting calls to 58 county eligibility centers despite the fact that the state will have a centralized eligibility call in center operated by the Exchange.
According to the LAO Forecast released this past November, General Fund spending growth for Medi-Cal, the state’s largest Health and Human Services (HHS) program, will average 6.8 percent per year over the 5-year forecast period.1
This level of program cost growth will outpace overall spending and revenue growth over the next four years, according to the Governor’s projections.
*Please note, the LAO projections are over a five year forecasting period (2012-13 to 2017-18). The Governor’s projections only provide a four year forecast (2012-13 to 2016-17).
The LAO expects total General Fund spending in Health and Human Services to grow at a 4.5 percent rate over the same period.2
The Governor predicted an even higher average growth of 4.9 percent for health and welfare programs over the next four years in his recently-released budget.
Additionally, the LAO estimates that Medi-Cal health care services will grow at an average annual rate of 6.8 percent over the entire forecast period and caseload will grow by 8.1 percent annually over the forecast period. This is due to (1) the transition of children enrolled in the cost-effective Healthy Families program to Medi-Cal and (2) factors related to the President’s health care reforms most notably expanded eligibility beginning January 2014.3
As the state is still awaiting guidance from the federal government on many issues related to implementation of health care reform, many of the costs remain unknown. Consequently, it is impossible to accurately calculate the impact of many of the factors and the end result may vary widely.
Medicaid (Medi-Cal) Expansion:
The Patient Protection and Affordable Care Act (ACA), signed into law by President Obama in March 2010, makes significant and far-reaching changes to the current health care system that will affect how millions of Californians access health care coverage. There are a number of changes encompassed in the law, one of which is the option for states to expand their Medicaid programs. Currently, Medicaid covers low-income families with children, seniors, and persons with disabilities, up to 100 percent of the federal poverty level (FPL). Under the ACA, the population covered will include individuals up to 133 percent of the FPL.4
This means that all individuals under the age of 65 (children, parents, and childless adults) that meet the income threshold would now be eligible for the program, which according to the LAO, equates to a potential increase of 2 million beneficiaries.5
Currently, costs for Medi-Cal services are split between the federal government and the state and in most cases, the federal match is 50 percent. For the expansion population, the federal government will cover 100 percent of the cost of services for the first three years beginning in 2014.This figure will gradually decrease to 90 percent after seven years, leaving the state responsible for 10 percent of the cost by 2020 and beyond.
U.S. Supreme Court Ruling and the Cost of Expansion
In June 2012, a U.S. Supreme Court ruling found that enforcing the mandatory expansion of Medicaid was unconstitutional, striking down this provision of the ACA and essentially making the expansion optional for states.6
Currently, there are a number of states, including Texas, Louisiana, and South Carolina that have chosen not to implement the expansion. However, an even larger number of states (more than one third) remain undecided. Nevertheless, states may choose to adopt or eliminate the coverage expansion at any time. The Governor’s budget indicates that he believes the state should expand Medicaid (Medi-Cal in California). According to the Legislative Analyst, the President’s health care reform Medicaid expansion is expected to drive up California’s Medi-Cal costs between $3-6 billion over 10 years.
Medi-Cal Increases Unrelated to Expanded Eligibility
Additionally, as the LAO points out in its forecast report, it is expected that a number of people that are currently eligible for Medi-Cal but who are not enrolled, will become enrollees once the ACA’s individual mandate is in place. The state would not receive an enhanced federal match for this currently eligible population as they would not fit the eligibility criteria of the expansion population. Therefore, the state would be required to pay 50 percent of these costs instead of 10 percent. According to the LAO, costs associated with this population are expected to be around $100 million beginning in 2013-14, increasing to the low hundreds of millions annually in subsequent years.7
Excessive Administrative Costs:
Eligibility for Medi-Cal is performed at the county level by workers in local social services agencies. California’s administrative costs per case are higher than other states and higher than comparable costs incurred by private vendors doing similar work, such as in the Healthy Families Program (HFP). As a comparison, the HFP vendor employs 600 workers for almost 900,000 enrollees, whereas counties employ or are budgeted for approximately 27,000 workers for nearly 8 million enrollees. Furthermore, the cost per enrollee for determining eligibility in the HFP is approximately $50 while the cost per Medi-Cal enrollee is $395.
As demand for Medi-Cal services increases as a result of the expansion, so too will the need for union workers to process the increased workload associated with determining eligibility for this population. However, unlike the costs for direct health care services, the state will not receive the enhanced 90-10 federal match for these increased administrative costs and instead, will be required to pay the current 50-50 match. The end result of this increased demand would likely be a substantial increase in state General Fund costs, along with an explosion in the number of union jobs and bureaucracy. However, these costs like the costs discussed earlier, are highly uncertain at this time since many policy decisions remain unresolved.
Governor’s and Speakers’ Proposals:
Governor’s Proposal— Obama Care, or the Affordable Care Act (ACA), requires that Medicaid programs be expanded to include individuals that are currently eligible but not enrolled in the program by implementing simplified eligibility and enrollment procedures. The Governor’s Budget includes a $350 million General Fund placeholder in the Department of Health Care Services (DHCS) budget to reflect the anticipated cost of expanding coverage to this population. The Governor’s Budget also provides a “framework” from which to begin the discussion of how to expand eligibility to include childless adults with incomes up to 138 percent (a state option under Obama Care).
The Governor proposes two alternatives to the optional expansion—a county-based approach and a state-based approach. The state-based approach would offer a standardized, statewide benefit package comparable to the current Medi-Cal benefit package, but would exclude long-term care coverage. To pay for the expansion, the state would need to capture the county savings that would result from expanded coverage at the state level and continue to use those funds to pay for the newly eligible population. Additionally, counties would assume responsibility for various human services programs, including subsidized child care. The county-based approach would build upon the existing Low Income Health Program (LIHP). Counties would maintain their current responsibilities for indigent health care services and would be required to meet statewide eligibility requirements and minimum health benefits. Counties would also have the option of offering additional benefits, with the exception of long-term care.
At this point, the Administration has not indicated a preference for one option over the other and the Governor’s Budget does not assume any state costs or savings related to the optional expansion.
Special Session Legislation: AB 1X–1 (Perez)—As part of the Special Session to implement federal health care reform called by the Governor on January 24, 2013, AB 1X–1, introduced by Speaker Perez, would implement the key provisions of the Medicaid expansion. Specifically, the bill would: 1) expand Medi-Cal eligibility to 133 percent of the federal poverty level (including income disregards, income eligibility is effectively 138 percent of the federal poverty level); 2) implement the Modified Adjusted Gross Income (MAGI) methodology for purposes of calculating Medi-Cal income eligibility for specified populations; 3) prohibit the use of an asset or resource test for individuals whose income is determined based on the MAGI; 4) expand Medi-Cal coverage for former foster youth until age 26; 5) establish a benchmark benefit package that includes the same benefits, services and coverage that is provided to all other full-scope Medi-Cal enrollees, supplemented by the benefits, services, and coverage included in the essential health benefits package; and 6) streamline and simplify the Medi-Cal eligibility, enrollment, and renewal processes.
When income exclusions are eliminated as part of the federal effort to make eligibility standards uniform nationally, the effective income eligibility rate is actually up to 138% of poverty.