The ACA Will Temporarily Shield Some Medi-Cal Providers From the State’s 10 Percent Cut

October 7, 2013

Doctors, dentists, and other health care providers who participate in Medi-Cal (California’s Medicaid program) are bracing for — or have already felt the impact of — a 10 percent payment cut that the state has begun implementing, as we reported last month. However, thanks to the federal Affordable Care Act (ACA), this reduction will not apply — at least through the end of 2014 — to many primary care services provided by family physicians, internists, and pediatricians. In fact, these physicians will see a substantial increase in their Medi-Cal payments starting this fall. This is because the ACA requires states to boost their Medicaid payments to the federal Medicare level for nearly 150 primary care services during 2013 and 2014, with the federal government paying the entire cost of the increase. (This increase applies to services provided on or after January 1, 2013, but the state’s implementation has been delayed. Therefore, doctors will receive retroactive payments for qualifying services provided since the beginning of this year.)

This payment boost is welcome news for primary care physicians who participate in Medi-Cal, since they currently receive exceptionally low reimbursement rates relative to their peers in other states. California’s Medicaid payments for ACA primary care services were the third-lowest in the US in 2012, when measured as a percentage of Medicare payments for the same services (see chart). Once the ACA rate increase takes effect, California’s Medicaid payments for primary care services will more than double, rising by an average of 136 percent, according to the Kaiser Family Foundation.

Based on state estimates, the ACA increase will bring an additional $1.2 billion in federal Medicaid funds to California during the 2013-14 fiscal year — dollars that will support the work of primary care physicians who serve very-low-income Californians through the Medi-Cal Program. Moreover, because primary care doctors are largely shielded from the payment cut that the state is currently rolling out, they will receive roughly $250 million that they otherwise would have lost during 2013-14, with half of these dollars coming from the federal government and the other half from the state. Taken as a whole, these additional dollars, although temporary, could help to boost primary care doctors’ participation in Medi-Cal as the state prepares to implement a major expansion of the program in January 2014.

Still, it’s worth bearing in mind that the Medicaid payment increase is set to expire at the end of 2014. At that point, primary care doctors not only would lose the temporary rate bump provided by the ACA, but also would be fully subject to the rate cut that the state is currently phasing in. Such a steep drop in payments could cause at least some primary care physicians to rethink their participation in Medi-Cal in 2015. In order to head off that possibility — and provide greater fiscal certainty for other Medi-Cal providers — state policymakers should consider repealing the 10 percent cut for all providers as part of next year’s budget debate.

— Scott Graves

California Set to Open New Marketplace for Affordable Health Coverage

September 27, 2013

Next week, California’s new online marketplace for affordable health coverage will open for business — a major milestone in the implementation of health care reform. Starting on October 1, Californians who lack affordable health coverage can access soon-to-be-expanded Medi-Cal coverage or purchase private health insurance — possibly with federal financial assistance — through Covered California, the health exchange that state policymakers created to help implement federal health care reform. Californians can apply for coverage in several ways, including online, by phone, and by mail, and can submit applications — which are available in multiple languages — directly to Covered California or to county human services offices. Both the Medi-Cal expansion — which will extend eligibility to more than 1 million low-income adults — and the private health coverage available through Covered California take effect on January 1, 2014. (For helpful summaries of how health care reform will work in California, see this recent Sacramento Bee article and Covered California’s list of frequently asked questions.)

Through Covered California, consumers for the first time will be able to make apples-to-apples comparisons of their health coverage options, a change that should help people make more informed choices. Moreover, while Californians will be able to purchase coverage outside of the exchange, Covered California is the only place where residents with incomes up to 400 percent of the federal poverty line — currently $45,960 for an individual — can use federal subsidies to lower the cost of the coverage that they buy.

These new coverage options can’t come soon enough for many Californians. In 2012, more than one-fifth of residents lacked health care coverage in 10 of the 40 California counties for which data are available, according to the US Census Bureau. These 10 counties, which include Los Angeles, Riverside, and Fresno, are home to more than two in five Californians.


It’s important to bear in mind that health care reform won’t reach all Californians. In particular, undocumented immigrants are prohibited from purchasing coverage through Covered California and will remain ineligible for Medi-Cal. A recent report from the UCLA Center for Health Policy Research notes that “despite being in working families, most undocumented immigrants are not covered by health insurance and face significant access-to-care barriers.” This is a key reason why we’ve consistently highlighted the need to maintain a strong county health care safety net to assist Californians who fall through the cracks.

Still, full implementation of health care reform this coming January will significantly improve the lives of millions of Californians — US citizens and legal immigrants alike — who currently lack access to affordable coverage and live daily with the prospect of being one medical diagnosis away from financial ruin.

— Scott Graves

State Implements Deep Cut to Medi-Cal Provider Payments

September 24, 2013

Two years ago, facing a substantial budget shortfall, state policymakers agreed to cut — by 10 percent — payments for doctors, dentists, and other providers who participate in Medi-Cal, California’s Medicaid program. Lawsuits filed by health care provider associations put this reduction on hold, but the state recently has won key federal court decisions. As a result, the Brown Administration began implementing the 10 percent cut earlier this month, starting with payments to dentists and medical transportation providers.

Incredibly, this reduction will apply not only going forward, but also retroactively to June 1, 2011, which means that providers will have to gradually pay back part of the payments they’ve received over the past couple of years. The retroactive portion of the cut is not yet in place, and the state’s recent guidance does not indicate how it will be implemented. However, earlier this year, the Administration suggested that the state would retroactively recoup payments from providers by temporarily imposing an additional 5 percent cut, for a total reduction of 15 percent. This additional 5 percent cut would remain in effect until the full amount owed retroactively is repaid.

In a classic case of bad timing, this cut is taking effect as California prepares for a major expansion of Medi-Cal — the cornerstone of the state’s full-speed-ahead implementation of federal health care reform. Enrollment in Medi-Cal, which already exceeds 8 million, will increase significantly beginning in 2014 as more low-income Californians become eligible for coverage. California’s payments to Medi-Cal providers are already exceptionally low, and the rate cut adds to concerns about whether enough providers will be willing to accept the newly covered Californians. Efforts to fully repeal the cut failed in the Legislature this year. However, lawmakers did pass Senate Bill 239, which — if signed by the Governor as expected — would repeal the rate cut for certain nursing facilities effective October 1. (These facilities would still be subject to the retroactive reduction.)

Health provider associations have at least one more legal avenue: an appeal to the US Supreme Court. An appeal has been filed, although it will likely be months before the Court decides whether to take the case and, even if it does (a long shot), a ruling would not be handed down until 2014.

In the meantime, the rate reduction will move ahead. State policymakers should revisit this issue as part of next year’s budget debate and decide whether a deep cut to the state’s main health care program for low-income families — a cut made during the dark days of a budget crisis — is really the best way forward for California. Repealing this reduction is a sensible step that would both create greater fiscal certainty for providers and represent a critical state investment in the success of health care reform.

— Scott Graves

Medi-Cal Expansion by the Numbers

July 11, 2013

Medi-Cal — the state’s Medicaid Program — provides health coverage to more than 8 million low-income Californians. This number is expected to climb sharply beginning this coming January due to a major program expansion adopted by state policymakers as part of the 2013-14 budget agreement. As authorized by federal health care reform, California will extend Medi-Cal coverage to more than 1 million parents and childless adults who are currently excluded from the program and whose incomes do not exceed 138 percent of the federal poverty line ($15,856 for an individual in 2013). The budget agreement also redirects — to the state — much of the funding that counties now use to provide health care to low-income, uninsured (“medically indigent”) residents. (Governor Brown insisted on linking this fund shift to the Medi-Cal expansion.)

We’ll be updating our Medi-Cal chartbook to reflect the framework of the expansion as agreed to by lawmakers and the Governor. For now, here are some numbers that help to put the Medi-Cal expansion into perspective:

  • 1/1/14 — the date that the Medi-Cal expansion is scheduled to begin.
  • 1.4 million — the number of Californians estimated to be newly eligible for Medi-Cal in 2014 under the expansion.
  • 635,000 — the number of newly eligible Californians expected to enroll in Medi-Cal during the first six months of 2014, according to recent state estimates. This figure includes 490,000 Californians who will transfer from the temporary Low Income Health Program (LIHP) on January 1, 2014. LIHP — which was created as a “bridge” to health care reform and expires at the end of 2013 — uses federal and county dollars to serve low-income adults who do not qualify for Medi-Cal under current rules. The vast majority of Californians enrolled in LIHP will be eligible for Medi-Cal in 2014, while the remainder will be eligible for coverage through Covered California, the state’s new health insurance exchange. The state’s estimate of the number of LIHP enrollees who will shift to Medi-Cal appears to be low. For example, in April 2013 LIHP enrolled about 575,000 Californians who will qualify for Medi-Cal under the expansion, or over 80,000 more people than the state estimates will move from LIHP to Medi-Cal. Moreover, LIHP enrollment could increase in the coming months to the extent that counties boost their outreach efforts. Therefore, the number of Californians who enroll in Medi-Cal under the expansion during the first half of 2014 could substantially exceed the state’s total estimate of 635,000.
  • 100% — the share of Medi-Cal expansion costs covered by the federal government from 2014 through 2016. The federal share will gradually phase down to a still-high 90% by 2020.
  • $1.5 billion — the amount of federal funding that California is expected to receive in 2013-14 to pay for the expansion. Federal funding is projected to increase substantially in later years. Using “moderate-cost assumptions,” the Legislative Analyst’s Office projects that California will receive $3.5 billion in federal funding for the expansion in 2014-15, rising to $6.2 billion by 2022-23.
  • $3.8 billion — the total amount of funding that is projected to be shifted from counties to the state over the next four years under the budget agreement ($0.3 billion in 2013-14, $0.9 billion in 2014-15, and $1.3 billion in each of 2015-16 and 2016-17). Counties use these dollars — which they receive as part of the 1991 state-to-county realignment of services — to provide health care to medically indigent residents. The budget deal assumes that counties will no longer need all of their 1991 realignment health care dollars as many medically indigent adults newly enroll in Medi-Cal under the expansion. The funds redirected to the state will be used to pay for CalWORKs grant costs that would otherwise be funded with General Fund dollars, and thus will generate substantial ongoing state savings. At this point, it’s not clear whether the amount of funding that remains with counties will be sufficient to provide health care for the millions of Californians who are projected to lack health coverage even after full implementation of health care reform.

— Scott Graves

What We’re Watching For in the May Revision and Beyond

May 13, 2013

Governor Brown is set to release the May Revision of his proposed 2013-14 budget tomorrow, kicking off the sprint to a final budget agreement in June. The CBP will provide a series of analyses of the revision, including a same-day statement, a brief analysis of major changes and important new proposals — and the issues they raise — and a more in-depth scan in the days that follow. You can find all the latest updates and analyses here at California Budget Bites.

The following are five issues that we’ll be watching for in the Governor’s May Revision and the budget deliberations that follow in the coming weeks:

1.   Education Finance Reform

The issue: The Governor’s proposed Local Control Funding Formula (LCFF) seeks to make the state’s system of school finance more equitable by providing additional revenue to school districts with disadvantaged students, a topic the CBP recently examined in its chartbook on the LCFF. Under the Governor’s proposal, each school district would receive a base grant per student and — in addition — a supplemental grant based on the unduplicated number of English learners or students from low-income families as well as a concentration grant for the share of these students above 50 percent of district enrollment.

We’re watching for: potential changes to the mix of LCFF grants as well as any new accountability provisions. Will the May Revision preserve the additional dollars allocated for disadvantaged students? If the LCFF concentration grants are reduced or eliminated, will the freed-up dollars be used to provide larger supplemental grants? The May Revision may also include stronger accountability provisions in terms of addressing district spending of LCFF dollars. Our view is that policymakers should preserve additional dollars the LCFF would allocate for disadvantaged students, including concentration grants, and that school districts should be required to use these dollars to directly benefit the students for whom they are intended.

2.    Medi-Cal Expansion

The issue: As part of federal health care reform, the Governor’s proposed 2013-14 budget calls for expanding Medi-Cal — the state’s Medicaid program — to cover low-income adults who currently are not eligible. Our recent Medi-Cal chartbook provides an in-depth look at the program and the issues raised by the expansion. In January, the Governor presented two approaches to expansion — a county-based approach and a state-based approach — while also linking the expansion to his proposal to “capture” some funding that counties now use to provide health care to low-income, uninsured Californians. The Governor’s proposal also assumes a 10 percent cut in payments for Medi-Cal providers that was approved by state policymakers in 2011 and is currently pending in the U.S. 9th Circuit Court of Appeals.

We’re watching for: a call for a state-led expansion that leaves existing funding with counties, for now, and that reconsiders the cuts to provider payments. Counties and health care advocates are nearly unanimous in their push for a state-led expansion. Also, any savings that counties do realize, at least in the near term, should be prioritized for local health services given that millions of Californians will remain uninsured even after health care reform is fully implemented and will turn to the counties for care. Lastly, amid concerns that payment cuts on the eve of the Medi-Cal expansion could drive providers from the program at the very time when provider participation needs to increase, we’ll be watching for a call to repeal those cuts.

3.    State Revenue Projections

The issue: Ten months through the current fiscal year, the State Controller’s Office reports that total revenue is running ahead of the Governor’s January projections by $4.6 billion. The state’s revenue collections are prompting speculation about increased revenue forecasts for the upcoming 2013-14 fiscal year.

We’re watching for: updated economic and revenue forecasts. If there is a projected increase in General Fund revenues compared to January projections, what will the revised level of the Proposition 98 minimum school funding guarantee be, and how will the May Revision propose to use additional Proposition 98 funding? Options would include using the dollars to pay back money borrowed from K-12 schools, providing additional funding to implement the Local Control Funding Formula, and/or providing resources for other one-time or ongoing education priorities. How much of this higher-than-anticipated revenue is left over beyond the Proposition 98 minimum funding level? And how is that revenue allocated? Calls for paying down budgetary debt and/or building up the state’s reserves are likely to be among the options considered. But, with many Californians still hurting in the wake of the Great Recession, a balanced approach would prioritize providing additional resources for critical programs such as child care and state preschool, CalWORKs, and adult dental coverage.

4.    Pay-Down of California’s Budgetary Debt

The issue: The Governor’s proposed 2013-14 budget calls for paying down $4.2 billion in budgetary debt as part of a plan to reduce this debt from $27.8 billion in 2012-13 to $4.3 billion by 2016-17. “Budgetary debt” includes money borrowed from K-12 schools, unpaid costs to local governments, and loans from state special funds.

We’re watching for: any changes to the Governor’s proposed pay-down. If the May Revision does project higher revenue collections, increasing the pay-down in 2013-14 could be part of proposals for allocating these additional revenues. The Governor and the Legislature may also choose to adopt a more gradual repayment schedule in order to free up funds to support other budget priorities.

5.    Enterprise Zone Reform

The issue: The Governor’s proposed 2013-14 budget includes a set of regulatory changes to the state’s Enterprise Zone (EZ) Program, which provides a variety of tax credits intended to encourage businesses to locate in economically distressed geographic areas. While the intent of the program is to promote business development and job creation in targeted areas, research shows that the program fails to achieve its goals and places an increasing strain on the state budget — $720 million in 2010, projected to rise to $1 billion by 2015-16.

We’re watching for: any changes to proposals to restructure the EZ Program. Proposals that are currently under consideration include the Governor’s proposed regulatory reforms as well as a number of legislative proposals that seek to restructure the program. Given that lawmakers are very unlikely to eliminate the program, we think that it should be restructured to better target the jobs and business development intended, boost accountability and evaluation of program effectiveness, and reduce the strain on the state budget.

— Chris Hoene