Expanding Medi-Cal While Protecting Counties’ Health Care Safety Net

Expanding Medicaid to parents and childless adults who are currently excluded — a change that could extend health coverage to hundreds of thousands of low-income Californians next year — is a cornerstone of federal health care reform. While there is broad agreement among policymakers that California should adopt this expansion of its Medi-Cal Program, there has been considerable debate over how the expansion should occur, as we explained in our recent Medi-Cal chartbook. Governor Brown settled one point of contention last week when he endorsed, in his May Revision, a state-led expansion of Medi-Cal, dropping his January proposal that left open the possibility of counties taking the lead.

At the same time, however, the Governor’s May Revision maintained his proposal to link the Medi-Cal expansion to a major “realignment” of fiscal and programmatic responsibilities for human services programs from the state to the counties. Under this proposal, additional county costs for three programs — CalWORKs, CalWORKs child care, and CalFresh — would be funded by redirecting to those programs most of the state dollars that counties currently use to provide health care to low-income, uninsured (“medically indigent”) residents. The Governor assumes that counties will no longer need these dollars as many medically indigent adults newly enroll in Medi-Cal under the expansion. The Governor therefore proposes to use these county “savings” — which would be determined based on a formula negotiated with lawmakers and counties — to reduce the state’s General Fund costs for human services programs dollar-for-dollar. Using the Administration’s version of the formula, the May Revision estimates that $300 million would be redirected from counties’ health care infrastructure in 2013-14, followed by shifts of $900 million in 2014-15 and $1.3 billion in 2015-16 — a total of $2.5 billion over three years.

From our vantage point, the Governor’s proposal raises three major concerns:

  • The Governor has not provided a policy rationale for pursuing a new state-to-county realignment. State policymakers periodically transfer responsibility for public services from the state to the counties, and vice versa, in an effort to improve service delivery and outcomes and align fiscal incentives with program responsibility. However, the Governor has not offered a clear policy justification for pursuing a new realignment that encompasses CalWORKs, child care, and CalFresh. The Administration has provided few details about the realignment concept, and evaluating the benefits and costs of the proposal (for both low-income families and counties) would require considerable time — time that lawmakers don’t have given that they must work out the details of the Medi-Cal expansion within the next two to three weeks. Also, the Governor’s proposal adds unnecessary complexity to the already-challenging decision of how to implement the Medi-Cal expansion, as the Legislative Analyst’s Office (LAO) has pointed out.
  • The Governor’s proposal would shift too much funding — too quickly — from county health care services. The Governor proposes to redirect $300 million from counties concurrent with the Medi-Cal expansion in 2014, with the annual amount shifted escalating to more than $1 billion within a couple of years. This rapid increase is attributable to both the structure of the formula (as proposed by the Administration) and the fact that all of the county “savings” would accrue to the state’s benefit, with no savings set aside for counties to reinvest in local health care services and infrastructure. The California State Association of Counties argues that “redirecting this money now will force counties to cut critical public health and safety net services and will reduce funding available to care for the remaining uninsured.” This is why we’ve suggested that policymakers take a “wait and see” approach regarding the appropriate level of state funding for indigent health care services. It’s unclear how the Medi-Cal expansion will affect the use and the cost of the county health care safety net in the coming years. As this picture comes into focus, lawmakers — armed with better information — can consider whether and how to shift any county savings that result from health care reform. In the meantime, policymakers could consider adopting the framework proposed by Health Access, under which the state would encourage counties to repurpose their Low Income Health Programs to serve the many Californians — an estimated 3 to 4 million — who are expected to remain uninsured even after health care reform is fully implemented.
  • The size of the proposed fund shift does not square with the Administration’s assertion that these dollars are needed to offset new state costs for Medi-Cal. The Administration’s primary justification for shifting dollars from county health care services is that the state “cannot afford” to both increase its spending on Medi-Cal and continue the current level of funding for county indigent health care. This argument has struck many advocates as curious because the federal government will fund the entire cost of the Medi-Cal expansion through 2016, at which point the state’s share of costs will increase to 5 percent in 2017 and gradually rise to a maximum of 10 percent in 2020. However, the Administration also argues that the state will have new costs for currently eligible Californians who are expected to newly enroll in Medi-Cal starting next year as a result of various eligibility simplifications now required by federal law. Yet the cost of these new enrollees is expected to be relatively small over the next few years. Using “moderate-cost assumptions,” the LAO estimates that the state’s cost for this already-eligible group will be roughly $100 million in 2013-14, rising to about $360 million in 2015-16. (The Administration has released larger estimates, but the LAO suggests those projections are “likely too high.”) In short, if the purpose of redirecting dollars from county health care services is simply to offset state Medi-Cal costs that are attributable to health care reform, then any amounts shifted would have to be significantly below the Governor’s proposed $2.5 billion over three years — and no higher than $100 million in the first year alone.

The federal government’s commitment to initially fund 100 percent of the cost of the Medi-Cal expansion gives California a historic opportunity to extend health coverage to hundreds of thousands of low-income adults while also ensuring that the county health care safety net remains strong for the millions of Californians who will continue to rely on it in the years to come. California is not faced with an either/or proposition; we can do both.

— Scott Graves