Medi-Cal and the Governor’s Proposed 2015-16 Budget: The State’s Net Cost for Californians Who Enroll in Medi-Cal Due to Health Care Reform = $0

Anyone who’s ever bought a car knows the “sticker price” doesn’t tell the whole story. As it turns out, this same notion applies to the state’s costs for Medi-Cal, California’s Medicaid program and a key source of health care coverage for millions of low-income Californians.

As we noted last month, the Governor’s proposed budget highlights the state’s sticker price for providing services to low-income Californians who enroll in Medi-Cal due to the implementation of federal health care reform. State analysts project that California will spend a bit more than $2 billion over two fiscal years — 2014-15 and 2015-16, which begins July 1 — to support health care services for Californians who have signed up for Medi-Cal due to changes associated with the federal Patient Protection and Affordable Care Act (ACA).

There are a couple of ways to think about this $2 billion sticker price, both of which are highlighted in the following chart.

2-6-15 Medi-Cal and Federal Funds

First, the state’s two-year, $2 billion cost for ACA-related enrollment in Medi-Cal pales in comparison to the federal government’s contribution over the same two-year period: $32 billion. These federal dollars — which are just a portion of total federal funding for Medi-Cal — flow to doctors, clinics, and other health care providers in communities throughout the state, boosting local economies and supporting vital health care services for millions of low-income Californians.

Second, once you factor in offsetting savings, California will actually have no cost for new Medi-Cal enrollees and in fact will see a net cost reduction of about $200 million in 2014-15 and 2015-16 combined. Specifically, the roughly $2 billion in new state costs identified by the Administration will be reduced by more than $2.2 billion as a result of two policy changes that lawmakers and Governor Brown adopted in 2013. (Previously, we couldn’t calculate this total savings amount because some of the data weren’t yet available.)

This net decrease in state costs — despite rising Medi-Cal enrollment under the ACA — is due to two factors:

  • A shift — back to the state — of certain dollars previously provided to counties for indigent health care, resulting in projected General Fund savings of $1.4 billion over two years.
  • The use of some proceeds from a tax on Medi-Cal managed care plans to offset state spending, resulting in ACA-related General Fund savings of more than $800 million over two years.

In short, these two policies — which are described in more detail in our previous blog post — result in state savings that exceed California’s cost for Medi-Cal enrollees who have signed up due to health care reform.

So, the next time you hear that health care reform has dramatically driven up state spending for Medi-Cal, follow the same rules that apply on the used-car lot: ignore the sticker price and focus instead on the actual rock-bottom cost.

— Scott Graves

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