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.

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

Medi-Cal and the Governor’s Proposed 2015-16 Budget: Health Care Reform Boosts Enrollment and Federal Funding

The Governor’s proposed 2015-16 budget reflects the continued implementation of the federal Patient Protection and Affordable Care Act (ACA) — also known as health care reform — in California. In particular, state budget documents highlight the impact of ACA-related changes affecting Medi-Cal, the state’s Medicaid program and a key source of health care coverage for millions of low-income Californians. The most notable changes include:

• The expansion of Medi-Cal health care services — which took effect on January 1, 2014 — to newly eligible parents and childless adults who were previously excluded from the program and whose incomes are at or below 138 percent of the federal poverty line (equal to $16,243 for an individual in 2015).

• Increased enrollment of low-income Californians who were already eligible for Medi-Cal prior to implementation of the ACA and who have since signed up due to new outreach efforts, simpler eligibility and enrollment rules, and other factors associated with the implementation of health care reform.

This post draws on the most recent state estimates in order to highlight five key facts about Medi-Cal enrollment and funding as policymakers prepare to debate state budget priorities for the 2015-16 fiscal year, which begins on July 1.

1) Medi-Cal enrollment has increased by 4 million over the past two years, primarily due to implementation of federal health care reform and the phase-out of the Healthy Families Program.

As shown in the chart below, Medi-Cal enrollment is up by slightly more than half — from just under 8 million in 2012-13 to nearly 12 million in 2014-15, the fiscal year that began this past July. Two major policy changes contributed to this substantial increase. The first is California’s decision to fully implement the ACA, including expanding Medi-Cal coverage to nonelderly adults who previously were ineligible. About 2 million newly eligible Californians are expected to be enrolled in Medi-Cal as of June 2015 due to the program expansion. An additional 1.1 million Californians who were already eligible for Medi-Cal prior to health care reform — but who had not previously signed up — are expected to be enrolled in the program as of this coming June.

A second — and often overlooked — factor that contributed to the recent jump in Medi-Cal enrollment is state policymakers’ decision, back in 2012, to eliminate the Healthy Families Program (HFP). By November 2013, California had shifted, to Medi-Cal, hundreds of thousands of low- and moderate-income children who previously received health, vision, and dental care through the HFP. As a result of this change, more than 900,000 children who otherwise would have been enrolled in the HFP are instead receiving services through Medi-Cal.

2) The number of Californians enrolling in Medi-Cal as a result of federal health care reform is much larger than the state initially anticipated.

One year ago, the Brown Administration projected that about 800,000 Californians who became newly eligible under the Medi-Cal expansion would be enrolled in the program as of June 2015. While this seemed a large number at the time, it turns out that this projection was actually well below the mark. As noted above, the Administration now expects 2 million newly eligible Californians to be enrolled in Medi-Cal as of June 2015 – more than twice the enrollment gain that was projected a year ago.

The Administration also has doubled its estimate — from 552,000 to 1.1 million — of the number of already eligible Californians who will be enrolled in Medi-Cal as of June 2015 due to federal health care reform. In short, at least in terms of enrollment, ACA implementation in California has been more successful than advocates and state policymakers ever could have imagined a year ago.

3) Medi-Cal enrollment growth is stabilizing following two consecutive years of double-digit increases.

Medi-Cal enrollment is projected to rise by just 2 percent — to 12.2 million — between 2014-15 and 2015-16. In contrast, enrollment increased by nearly 20 percent from 2012-13 to 2013-14 and by 26 percent from 2013-14 to 2014-15, mainly due to the effects of health care reform and the elimination of the HFP.

4) The federal government will provide an estimated $17 billion in 2015-16 to support health care services for Californians who enroll in Medi-Cal due to federal health care reform.

California is projected to receive $17.1 billion in federal Medicaid funds in 2015-16 — up from an estimated $15.1 billion in 2014-15 — to provide services to Californians enrolled in Medi-Cal as a result of the changes associated with health care reform. These federal dollars will 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. Specifically, in 2015-16 the federal government is projected to provide:

• $14.3 billion to support services for Californians who are newly eligible for Medi-Cal under the program expansion. The federal government is paying the full cost for this group through 2016, phasing down to a still-high 90 percent of the cost by 2020.

• $1.2 billion to support services for Californians who sign up for Medi-Cal through a new “Express Lane” enrollment pathway. California adopted a new process to reach out to certain Californians and expedite their enrollment in Medi-Cal based on information that’s already available to the state. This process primarily targets adults and children who receive CalFresh food assistance, but who are not yet enrolled in Medi-Cal. The federal government is paying nearly all of the cost for these “Express Lane” enrollees, who largely consist of low-income adults who are newly eligible for Medi-Cal.

• $1.1 billion to support services for Californians who were already eligible for Medi-Cal prior to implementation of health care reform and who have since enrolled due to simpler program rules and other factors. The federal government is expected to pay slightly more than half of the cost for this group.

• $0.6 billion to support services for Californians who sign up for Medi-Cal through a new hospital-based enrollment option. Hospitals may now enroll Californians in Medi-Cal for up to two months based on preliminary information provided by patients (a status known as “presumptive eligibility”). Individuals must later submit an application and be found eligible in order to extend this temporary coverage. The federal government is paying most of the cost for these enrollees, who largely consist of low-income adults who are newly eligible for Medi-Cal.

5) The state’s “net cost” for Californians who enroll in Medi-Cal due to federal health care reform is substantially smaller than the “sticker price” highlighted by the Governor.

In 2015-16, the state is projected to spend $1.1 billion on services for Californians who enroll in Medi-Cal due to implementation of federal health care reform. The Governor highlights the fact that more than $900 million of this $1.1 billion will support services for Medi-Cal beneficiaries who were already eligible for Medi-Cal prior to health care reform and who are expected to be enrolled in 2015-16 due to simpler program rules and other factors. (This is the group for which the state and federal government split the cost of services roughly 50/50.)

Clearly, this $1.1 billion state investment pales in comparison with the more than $17 billion the federal government is expected to provide for ACA-related enrollment in 2015-16. But the state’s actual — or “net” — cost associated with new Medi-Cal enrollees will be even lower than this $1.1 billion “sticker price” suggests — possibly as low as $0. This is because state policymakers adopted two major policy changes in 2013 designed to reduce — or “offset” — state General Fund spending with alternative funding sources. In essence, these General Fund “offsets” eliminate most, if not all, of the state’s cost for ACA-related enrollment in Medi-Cal. Specifically:

• State policymakers redirected — from the counties to the state — a substantial share of the state dollars that counties have historically used to provide health care to uninsured, low-income residents. This fund shift is projected to total nearly $700 million in 2015-16, with these dollars used to reduce state General Fund spending. After taking this fund shift into account, the state’s projected cost for ACA-related Medi-Cal enrollment in 2015-16 “nets out” to about $400 million ($1.1 billion minus $700 million).

• State policymakers also established a tax on Medi-Cal managed care organizations (MCOs), with a portion of the revenues used to offset state General Fund spending. As Medi-Cal enrollment has increased under health care reform, so have MCO tax revenues, which in turn boosts the benefit to the state’s General Fund. How much of this benefit is attributable to higher Medi-Cal enrollment under health care reform? Unfortunately, state budget documents don’t provide an answer. However, a review of other state data suggests that this General Fund benefit will likely exceed $400 million in 2015-16. An offset of this size would further reduce the state’s net cost for ACA-related Medi-Cal enrollment to $0 in 2015-16, after taking into account the $700 million state fund shift from counties described above.

Beyond ACA Implementation: What Issues Could Be on State Policymakers’ Agenda in 2015?

California’s success in implementing federal health care reform – including the enrollment of an additional 3 million Californians in Medi-Cal — speaks to the pent-up demand for affordable health care coverage as well as the difficult economic circumstances that many residents face in the aftermath of the Great Recession. In order to qualify for Medi-Cal, a nonelderly adult with no dependent children must have an income below roughly $1,350 per month — a paltry sum in a state where the fair market rent for a one-bedroom apartment exceeds $1,000 per month.

Clearly, Medi-Cal provides a health care lifeline for millions of low-income Californians and is a critical piece of the state’s health care infrastructure. But the state’s long-term goal should be to reduce the number of residents who live below or near the poverty line — and who thus qualify for Medi-Cal — by helping families boost their incomes, such as by further increasing state’s minimum wage and creating a state earned income tax credit (EITC). While rising incomes would cause some residents to lose eligibility for Medi-Cal, they could purchase coverage — with federal financial assistance — through Covered California, the state’s health insurance marketplace that was established as part of the ACA.

In addition, more work is needed to ensure that Californians who continue to live on poverty-level wages have access to necessary health care services. Expanding health care coverage to undocumented immigrants in California — including through Medi-Cal — is already on the agenda, as we noted earlier this month. Lawmakers might also consider repealing the 10 percent reduction to Medi-Cal provider payments that the state began implementing in 2013 — a cut that may be discouraging some providers from participating in Medi-Cal even as enrollment continues to rise. These are important policy questions to watch as California seeks to build on the progress already made in expanding coverage as envisioned in federal health care reform.

— Scott Graves

Issues to Watch in 2015: Expanding Health Care Coverage to Undocumented Immigrants in California

More than 2 million undocumented immigrants live in California. They make significant contributions to our state, comprising nearly one-tenth of the workforce and paying well over $2 billion in state and local taxes each year. But when it comes to health care, these Californians face a substantial hurdle: federal law prevents them from accessing coverage under the Affordable Care Act (ACA), either through Medicaid (Medi-Cal in California) or through the new health insurance marketplace set up under the ACA (Covered California). While undocumented residents may get health care coverage through an employer, most do not. Those who lack coverage may have no regular source of health care and may face huge out-of-pocket costs for any care they do receive.

Expanding health care coverage to undocumented immigrants in California will be a key policy issue in 2015. This post highlights four key facets of the state and federal policy landscape that will help determine whether California makes significant progress toward achieving this goal in the near future. These are: (1) state Senator Ricardo Lara’s Senate Bill 4, (2) President Obama’s recent executive actions on immigration, (3) California’s current policy regarding Medi-Cal coverage for undocumented immigrants, and (4) the anticipated renewal of California’s “Section 1115” Medicaid waiver, the current version of which expires in late 2015.

Senate Bill 4: A Framework for Expanding Health Care Coverage to California’s Undocumented Residents

Last year, Democratic state Senator Ricardo Lara introduced SB 1005, starting a conversation about expanding health care coverage to all of the state’s undocumented residents. While that initial effort stalled, Senator Lara’s new bill — SB 4 — will rekindle the debate in 2015. SB 4 is intended to provide health care coverage to undocumented residents by allowing those with low incomes to enroll in Medi-Cal and those with somewhat higher incomes to buy coverage — with state financial assistance — through a new, state-run health insurance marketplace that would mirror Covered California.

SB 4 would advance a worthy policy goal. But by expanding the state’s role in providing health care coverage to undocumented immigrants, this legislation would also result in new state costs. These costs will be estimated and scrutinized as part of the legislative hearing process that will get under way in early 2015. Senator Lara has been working to identify revenues that could offset some or all of the new state costs, thereby minimizing the impact of this policy change on the state budget.

President Obama’s Recent Executive Actions on Immigration

Senator Lara introduced SB 4 in the wake of a significant change in federal policy regarding undocumented immigrants. In November, President Obama announced a new federal policy allowing several million undocumented immigrants to apply to temporarily remain in the US — and work legally — without fear of deportation. The President’s order will primarily benefit an estimated 4 million parents who have lived in the US for more than five years and whose children are US citizens or lawful permanent residents. In addition, a few hundred thousand undocumented immigrants who came to the US as children will benefit from the expansion of the Deferred Action for Childhood Arrivals (DACA) program, which the President created in 2012.

In short, due to the President’s recent actions, well over 4 million people throughout the US will soon be able to apply to the federal government for “deferred action.” Those who qualify would be considered lawfully present in the US for a three-year period. It’s not known how many undocumented immigrants living in California will be eligible to apply for deferred action. The number could be substantial, possibly in the range of 1 million. However, it’s unlikely that all of the immigrants who are eligible to apply would do so, or that all of those who do apply would in fact be granted deferred action status.

The President’s Actions Provide a Pathway to State-Funded Medi-Cal Coverage for Some Undocumented Immigrants

The President’s recent actions on immigration — combined with the state’s current policy on Medi-Cal coverage for undocumented immigrants — will help to move California closer to the goal of providing affordable health care coverage to undocumented residents.

Here’s how:

California allows certain undocumented immigrants — including those who qualify for deferred action under federal immigration rules — to sign up for Medi-Cal so long as they otherwise meet the program’s income eligibility guidelines. For adults, this means their income can’t be higher than 138 percent of the federal poverty line (just over $16,000 per year for an individual). Because of this state policy, low-income residents who qualify for deferred action under the President’s original DACA program – the one created back in 2012 — are already eligible for Medi-Cal. By extension, low-income Californians who qualify for work permits and temporary relief from deportation under the President’s new initiatives should also be eligible for Medi-Cal. In other words, even if SB 4 never becomes law, a large number of undocumented immigrants — those who qualify for deferred action under the new federal rules — could soon begin enrolling in Medi-Cal based solely on current state policy.

Yet, while California’s policy is unambiguous, it’s not clear how state policymakers will respond in the wake of the President’s actions. A top aide to Governor Brown recently said that the Governor is evaluating the impact of the new federal immigration rules. This same aide noted that expanding Medi-Cal coverage to undocumented residents who qualify for deferred action under these new federal policies would “cost money.” This is true. In fact, California pays the full cost of Medi-Cal coverage for such immigrants because federal dollars can’t be used for this purpose. Federal Medicaid funds may be used only to provide emergency and pregnancy-related services (i.e., limited and episodic care) to this population.

Clearly, California has a compelling fiscal incentive for encouraging the federal government to rethink its restrictive approach to funding health care for undocumented immigrants. A favorable outcome — from the state’s perspective — would reduce California’s costs for expanding health care coverage to undocumented residents as well as help to move the state closer to achieving the coverage goals envisioned in SB 4.

State Officials Should Explore Whether Federal Funds Could Be Used to Cover a Larger Number of Undocumented Immigrants Under a “Section 1115” Waiver

The impending expiration — in October 2015 — of California’s Section 1115 Medicaid waiver provides an opportunity for state officials to engage their federal counterparts on the issue of health care coverage for undocumented immigrants. (Section 1115 waivers allow states, with federal permission and for a limited time, to “test new approaches in Medicaid that differ from federal program rules.”) The Governor wants a new waiver and plans to submit a formal proposal to the Obama Administration in early 2015, kicking off what’s likely to be several months of negotiations. State officials have floated a number of ideas for the waiver that focus largely on changing how health care services are delivered and paid for through Medi-Cal, with the goals of improving health outcomes and controlling costs.

So far, undocumented immigrants don’t figure into the state’s Section 1115 waiver ideas. But they should. After all, what could be more critical to transforming how health care is delivered and funded than rethinking the fragmented and incomplete “system” through which undocumented immigrants currently access health care services in California? As noted above, the federal government already shares — with the state — the cost of providing limited and episodic health care to some undocumented residents through Medi-Cal, including services delivered in costly emergency rooms. Without a doubt, these federal dollars could be used more efficiently and effectively if they instead supported coordinated care that emphasized prevention and the appropriate management of chronic health conditions.

This is where the Section 1115 waiver comes in. In theory, current federal policies that prevent federal dollars from being used to support health care coverage for undocumented immigrants could potentially be modified as part of a waiver agreement, at least for the duration of a new waiver (typically five years). If this occurred, California’s cost of providing Medi-Cal coverage to undocumented residents would drop substantially. This is because the federal government would begin sharing costs that the state would otherwise pay for on its own. (Under this scenario, federal costs for undocumented immigrants would not increase compared to current law. Instead, federal Medicaid dollars that support limited and episodic care for undocumented immigrants would be redirected to fund health care coverage.) Moreover, expanding health care coverage for undocumented immigrants with federal financial assistance would help move California closer to meeting Governor Brown’s goals for a new Section 1115 waiver: improving health outcomes and controlling costs.

Conclusion

Lawmakers and advocates will pursue multiple options in 2015 to advance — and pay for — a worthy goal: extending health care coverage to undocumented residents who work, pay taxes, and put down roots in the Golden State. In light of the President’s recent actions on immigration, the anticipated renewal of the state’s Section 1115 Medicaid waiver provides a key opportunity to help move California closer to creating a health care system that works for everyone.

— Scott Graves

Medi-Cal in the Governor’s Proposed 2014-15 Budget: Health Care Reform Boosts Enrollment and Federal Funding

Medi-Cal — the Medicaid Program in our state — provides health care coverage for millions of low-income Californians, primarily children, youth, and women. Last year, state policymakers approved expanding Medi-Cal — as authorized by federal health care reform — to extend coverage to more than 1 million low-income adults who had not previously been eligible for the program and made other changes intended to increase enrollment.

A new CBP analysis — the latest in a series of briefs on key components of Governor Brown’s proposed 2014-15 budget — looks at the Medi-Cal Program. This brief shows that 1.5 million Californians are projected to enroll in the program due to implementation of health care reform, bringing total Medi-Cal enrollment to slightly more than 10 million. This boost in enrollment is projected to increase federal funding for Medi-Cal by more than $10 billion through June 2015.

At the same time, however, the Governor’s proposed budget largely maintains a 10 percent cut to Medi-Cal payments for doctors, dentists, and other providers, which could hinder enrollees’ access to care.

This CBP brief on Medi-Cal in the Governor’s budget proposal can be found — along with the full series of briefs, which covers education, human services, corrections, and other topics —  on our website.

— Steven Bliss

So Long, Healthy Families Program

Next month, following a 15-year run, the curtain will go down on California’s Healthy Families Program (HFP), which has provided low-cost health, dental, and vision coverage for children in low- and moderate-income families. As part of the 2012-13 state budget deal, lawmakers adopted Governor Brown’s proposal to transfer children enrolled in the HFP to Medi-Cal, California’s largest publicly funded health coverage program for low-income residents. In addition to providing coverage for children transitioning from the HFP, Medi-Cal now covers all newly enrolling children who were previously eligible for Healthy Families, up to 250 percent of the federal poverty line ($48,825 for a family of three in 2013).

The shift of children from Healthy Families to Medi-Cal began this past January 1 — when about 850,000 kids were enrolled in the HFP — and has proceeded in several stages. By the end of September, nearly 730,000 children had been transferred to Medi-Cal, although tens of thousands of children did not make the transition because they lost eligibility for Healthy Families prior to their scheduled transfer date. (Children can be removed from the HFP for a number of reasons, including if their families do not pay monthly premiums or they reach their 19th birthday and “age out” of the program. It’s likely that at least some of these children found — or eventually will find — their way onto Medi-Cal by applying for coverage through their county human services offices.) The final group of children — more than 20,000 — will transfer from Healthy Families to Medi-Cal on November 1.

Once the transition from Healthy Families is complete, nearly half of all California children will be enrolled in Medi-Cal, according to state estimates. Ultimately, the success of this transition will hinge on whether children in Medi-Cal are able to access the health care services they need. In this regard, state officials have more work to do. For example, many children with autism lost access to critical behavioral health services when they were shifted from Healthy Families to Medi-Cal. Another concern: Doctors, dentists, and other Medi-Cal providers are bracing for — or have already felt the impact of — a 10 percent provider payment cut that the state has begun implementing, although primary care doctors will be largely shielded from this reduction through 2014 due to a provision in the federal Affordable Care Act. It’s too early to tell whether these payment changes will, on balance, have a positive or negative impact — or no impact — on provider participation in Medi-Cal and thus on children’s access to care. State officials should closely monitor the situation in the months ahead to ensure that all of the more than 8 million Californians enrolled in Medi-Cal — children and adults alike — have timely and adequate access to needed care.

— Scott Graves