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.
Health---Medi-Cal---Caseload;-SFY-Caseload-Since-12-13-CHART

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.