Unfinished Business: The Special Legislative Session on Health and Human Services

With lawmakers returning from their summer break, the final month of this year’s legislative session gets under way today at the state Capitol. Not surprisingly, there’s plenty of unfinished business on the agenda. This includes shoring up funding for key health and human services programs as part of a special legislative session that Governor Brown convened this past June.

The Governor’s Special Session Proclamation Lays Out Three Goals

The Governor’s special session proclamation calls on lawmakers to approve “permanent and sustainable” revenues — although not from the General Fund, the state’s main “checking account” — in order to achieve three goals:

  • Prevent a funding shortfall of over $1 billion for Medi-Cal, the state’s health care coverage program for Californians with low incomes. Currently, California uses revenues from a tax on some managed care organizations (MCOs) to draw down additional federal Medicaid funds and reduce — or “offset” — the state’s General Fund costs for Medi-Cal by more than $1 billion per year. These General Fund savings are then used to support other state priorities. However, the current MCO tax no longer meets federal guidelines and must be replaced. If state lawmakers fail to adopt a new MCO tax or an alternative source of revenues, the current $1 billion-plus General Fund offset would expire in July 2016. State policymakers would then be faced with the prospect making more than $1 billion in cuts to services in the 2016-17 fiscal year in order to close the shortfall.
  • Provide funding to support the ongoing cost of reinstating hours of care in the In-Home Supportive Services (IHSS) Program. The state budget for the current fiscal year — 2015-16 — provides $226 million from the General Fund to reverse a 7 percent cut to hours of care in IHSS, which helps more than 460,000 low-income seniors and people with disabilities remain safely in their own homes. The Governor asserts that “the state’s General Fund cannot afford to permanently maintain [this] restoration.” The Governor wants to use revenues from a new MCO tax or from another revenue source to fund these additional IHSS costs in 2016-17 and beyond.
  • Increase payment rates for Medi-Cal services and for services provided to Californians with developmental disabilities. An immediate concern for health care providers in Medi-Cal is the 10 percent cut to payments that took effect beginning in 2013 and largely remains in place today. Payment rates have also been a major concern for providers in the state’s developmental services system. A payment freeze in effect since 2006 — combined with other policy changes — has prompted providers and advocates to argue that the system is “on the brink of collapse.” Earlier this year, the Legislature proposed to boost payment rates for both Medi-Cal and developmental services providers, using General Fund dollars. However, the 2015-16 budget agreement reached with Governor Brown deleted these provisions.

Lawmakers Have Introduced Bills Intended to Achieve At Least Some of the Governor’s Special Session Goals

Many bills have been introduced as part of the special session on health and human services, which is officially known as the “2015-16 Second Extraordinary Session” (or “x2” in legislative lingo). A few of these bills are “shells”: They express the Legislature’s intent to address the issues raised in the Governor’s special session proclamation, but currently contain no substantive legislative language. However, three bills have been put forth that aim to achieve at least some of the Governor’s goals. These bills are:

  • Assembly Bill x2 4 (Levine). This bill aims to comprehensively address the issues identified in the Governor’s special session proclamation. The bill would establish a new MCO tax effective July 1, 2016. This tax would be $7.88 per enrollee per month and — unlike the state’s current MCO tax — would apply broadly to health plans doing business in California, thereby complying with federal guidelines. The revenues from this tax — estimated at nearly $2 billion per year — would be deposited into a new “Health and Human Services Special Fund.” These special fund dollars would be available to:
    • Continue offsetting a portion of the state’s cost for Medi-Cal, generating more than $1 billion in annual General Fund savings that would be used to fund other state priorities, as under current law.
    • Fund the cost of reinstating IHSS hours of care (that is, maintaining the restoration of hours included in the 2015-16 budget), resulting in annual General Fund savings of more than $200 million beginning in 2016-17.
    • Reverse the 10 percent cut to Medi-Cal provider payment rates that was implemented beginning in 2013 and largely remains in effect.
    • Increase — by an amount to be determined by the Legislature — funding for services provided to Californians with developmental disabilities
  • Senate Bill x2 4 (Nielsen and Stone). Like AB x2 4 this bill aims to increase funding for services provided to people with developmental disabilities as well as to boost payment rates for Medi-Cal providers. These increases would be triggered only if the Governor projects, early in 2016, that General Fund revenues will exceed the levels assumed in the 2015-16 state budget. If the Governor does project additional state revenues, some of these dollars will have to be set aside to meet constitutional obligations, such as the Proposition 98 school funding guarantee. However, under SB x2 4, any remaining higher-than-expected revenues would be used to:
    • Increase funding for developmental services. This would include a boost — of up to 10 percent — in payment rates for a range of services provided to people with developmental disabilities.
    • Partially or entirely roll back the recent cuts to Medi-Cal provider payments — but only if revenues remain after boosting funding for developmental services.
  • Senate Bill x2 1 (Beall). This bill aims to boost funding for services provided to people with developmental disabilities. The bill doesn’t identify a revenue source, but rather makes any funding increases “subject to an appropriation of funds” by the Legislature. Assuming that such funds were made available, SB x2 1 would increase — by 10 percent — payments for a range of services for people with developmental disabilities. The bill would also direct additional funds to service providers to offset costs stemming from state and local minimum-wage increases.

More Special Session Bills Are Likely on the Way, but the Path Forward Is Unclear

Additional legislative proposals related to the special session on health and human services are likely to surface in the days and weeks ahead. Some lawmakers will add language to the “shell” bills they’ve already introduced. Others will introduce new legislation, perhaps including a proposal to increase the state’s cigarette tax.

It’s not yet clear whether policymakers will be able to strike a deal in the coming weeks that provides the “permanent and sustainable” revenues that the Governor has called for. The state Constitution sets a high bar for increasing taxes: a two-thirds vote of each house of the Legislature. As a result, a handful of Republican votes would be needed in order to put any tax measure on the Governor’s desk. This means that a special session deal would not only have to bring together Democratic lawmakers and the Governor, but would also have to satisfy at least a few Republican lawmakers.

If policymakers fail to reach a deal before September 11 – when the Legislature’s regular session goes on hiatus until January — the special session debate is unlikely to resume before early next year. The state’s current MCO tax remains in effect through next June, and the Legislative Analyst’s Office believes that “the federal funds leveraged by the tax in 2015-16 are not at risk, even if the state took no further action to extend or modify the tax.” In other words, as far as the MCO tax — and the $1 billion General Fund offset that it provides — are concerned, state policymakers won’t face a hard deadline for at least 10 months. While this gives lawmakers and the Governor some breathing room, the potential for delay is unlikely to sit well with Medi-Cal providers or with providers and advocates for people with developmental disabilities, who remain focused on inadequate payment rates and no doubt hope that policymakers will identify funding solutions sooner rather than later.

— Scott Graves