Federal Reductions Could Mean Deep Cuts For Medi-Cal

It has been one week since California enacted a rare on-time and lean budget. For those of you longing for a months-long fiscal fight, look 2,700 miles eastward to the nation’s capital where discussions about reducing the deficit, increasing the federal debt ceiling, and passing a federal budget have been heating up.

As part of efforts to balance the federal budget, President Obama unveiled his “Framework for Shared Prosperity and Shared Fiscal Responsibility” in April, which would reduce Medicaid spending by $100 billion over the next 10 years and could result in additional cuts to Medi-Cal, further weakening the program. To achieve this reduction, the Obama Administration proposes to:

  • Restrict states’ ability to use taxes or fees paid by health care providers to draw down federal funds. California, along with 45 states and the District of Columbia, imposes fees and taxes on health care providers to provide additional state dollars that are then used to draw down federal matching funds. In 2010-11, California imposed fees and taxes on hospitals, long-term care facilities, and managed care plans, enabling the state to draw down an estimated $2.5 billion in federal funds. President Obama’s 2012 budget, released in February, proposed to reduce the maximum assessed tax on providers from 6 percent of revenues in 2014 to 3.5 percent in 2017 and beyond. The Administration’s April framework would also restrict the amount of federal funds that could be obtained using provider taxes and fees, though the framework did not specify an amount.
  • Change the way federal payments for Medi-Cal are calculated. In general, the state and federal governments each pay 50 percent of the cost of Medi-Cal. For some services, however, such as family planning, the federal government pays a greater share. Under the President’s framework, the various federal matching rates would be “blended” to create one rate. Calculating California’s “blended” rate would require federal officials to make a number of projections – including how many adults will enroll in Medi-Cal as a result of the federal health reform law – without any actual experience.

Together, these proposals would mean only one thing: fewer federal dollars for Medi-Cal. With fewer federal dollars, the state would be forced to spend more to maintain current services or cut Medi-Cal even further. The CBP has documented that reductions to Medi-Cal since 2008-09 have totaled $2.7 billion – the state is already providing fewer services at greater cost to individuals enrolled in the program. Further reductions would result in even greater harm for 7.4 million Californians who rely on Medi-Cal.

— Hanh Kim Quach