The 2016 Ballot Initiatives: Financing Medi-Cal –
Navigating Scylla and Charybdis (Updated Version)
Where are we now? The FY 2016-17 Budget projects that Medi-Cal enrollment will increase to 14 million subscribers in 2016-17, at a total cost of $86 billion, of which $19 billion is state General Fund, and the remainder comprise a mix of federal matching funds, local funds and state special funds. Adding in Covered California subscribers means 15.5 million Californians – roughly three in eight Golden State residents – will be covered between the two programs.
Who’s on the programs? Low income seniors, the disabled, the developmentally disabled, the severely mentally ill, children, parents and pregnant women are the basic eligibility categories. California pays a 50/50 match for most of these program eligibles. The Affordable Care Act (Obamacare) added other uninsured low-income uninsured adults and increased the Medicaid income eligibility for parents from 100% of poverty to 138% of the poverty level (about $16,243 for an individual). The federal government pays 100% of the costs of the new eligibility categories, slowly declining to a 90/10 match by 2020. The California legislature and Governor Brown have also committed $188 million in state General Funds over the coming fiscal year towards full scope coverage for an estimated 185,000 undocumented children.
Mandatory HMO enrollment: Over 80% of Medi-Cal subscribers are enrolled in managed care plans, otherwise known as HMOs. The rest are in a traditional fee for service system. Medi-Cal’s cost per eligible are low compared to other states due to three important factors: 1) low reimbursement, 2) low utilization, and 3) a younger and healthier population than the Northeast, Southern and Midwestern states.
First Scylla! Since the mid 70’s, the percentages of Americans (and Californians in particular) with employment-based coverage have steadily declined. At the same time health insurance premiums and costs have been growing at far faster rates than the rest of the nation’s economy. This puts enormous pressure on Medi-Cal to accommodate steadily growing numbers of subscribers who no longer have access to private coverage through their jobs and constant pressure to keep up with the supercharged growth in private sector health spending, prices and premiums. California’s uninsured rates steadily grew to over 20% among the nation’s highest – impacting nearly 7 million California residents. Medi-Cal enrollment grew from about 3.5 million in 1983 to help cover 7.8 million Californians by December 2013 at the advent of the ACA.
Next Charybdis! Since the late 70’s California voters have tied state and local finances in a series of knots. Proposition 13 froze the growth in local property taxes which funded public schools, public hospitals, and county and municipal governments and their programs. Following up, the Gann initiative froze the growth in state spending to the growth in population plus the CPI (Consumer Price Index). Proposition 98 then walled off a percent of the state’s General Fund committed to public schools. And a series of tough on crime initiatives filled state prisons to bursting, many due to convictions for drug offenses as a part of the “drug wars”. Two thirds vote requirements for state legislative actions on budgets and taxes and partisan gridlock in the State Capitol further drove advocates to submit a series of successful ballot initiatives to fund care of the uninsured, for breast cancer treatments, for early childhood development, for after school programs to name just a few.
Thanks Obama! The Affordable Care Act (ACA) threw California a lifeline in both financing and coverage. The federal program expands coverage in two respects: Medicaid (Medi-Cal) expansion for the lower income uninsured and refundable tax credits through Covered California (California’s Exchange) to help with affordability of premiums and cost sharing for the moderate and middle income uninsured and private individually insured. Over 6 million Californians are enrolled due to the ACA and the numbers of uninsured Californians have declined by more than half. To date, the federal government has paid 100% of the new Medicaid expansion categories, and over the next three years that will slowly decline to a 90/10 match. California’s projected share will cost about $820 million in the next fiscal year growing to about $1.5 billion in 2019-2020.
The ACA and mental health parity in combination with federal-state-local waivers has also expanded Medi-Cal coverage of behavioral health services. The most recent (2020) waiver includes coverage for a full continuum of substance use disorder (SUD) benefits and the opportunities for county governments to knit together siloed behavioral and physical health services in combination with social services and housing to provide whole person care to the most vulnerable and highest cost populations, such as those suffering from dual diagnosis conditions and homelessness. This will depend heavily on initiative and collaboration between local governments and local health plans to succeed. So success may prove highly variable from community to community.
Thanks counties, hospitals and health plans! County governments play a key role in financing Medi-Cal. After the passage of Prop 13 and the Gann initiative, the state began a process of transferring state funding streams (principally the sales tax) and responsibilities to county governments for public health, indigent health, behavioral health and local law enforcement; this process goes under the name of realignment. The counties in turn may and do use these and other local funds as the Medicaid match for behavioral health programs, and county hospital roles in providing care to their low income patients. While the counties are saving roughly $700 million due to the state’s Medicaid expansion for the medically indigent adults, counties are spending $2.2 billion as match for the new waiver for public hospitals, whole person care and expanded treatments for substance abuse.
Hospitals and health plans have committed their own resources in the forms of special fund taxes and fees to support the Medi-Cal program as well. (Special funds are taxes and fees dedicated to a particular purpose such a gas taxes dedicated to state highways.) These fees and taxes must comply with the federal restrictions on provider taxes, The recent renewal of the state’s MCO tax of over $1.1 billion in this fiscal year growing to $1.7 billion in each of the next two years serves as an example of both their commitments to the Medi-Cal program and the arts of deft compromise necessary to preserve this funding.
While local matches and plan and provider taxes are not ideal for a host of reasons, they have been necessary components to threading the constitutional and statutory needles necessary to fund California’s Medi-Cal program. California has been one of the nation’s pioneers in ACA implementation; its ongoing and future success will depend on correctly aligning plans, providers and three levels of government, and ongoing support by the state’s voters and elected officials.
2016 Ballot Initiatives! The initiatives on the November 2016 ballot will help improve Medi-Cal financing in the following ways; they depend on imminent decisions by California’s voters.
Proposition 52 is a constitutional amendment that locks in the existing Medi-Cal hospital fee of $4.6 billion, and prevents the legislature from diverting funding absent a 2/3rds vote of the legislature. Proposition 52 allows hospitals to be reimbursed at Medicare rates for their services to Medi-Cal patients. It is supported by: the California Hospital Association and virtually every major health organization, both political parties, business, labor and many elected officials https://ballotpedia.org/California_Proposition_52,_Voter_Approval_to_Divert_Hospital_Fee_Revenue_Dedicated_to_Medi-Cal_(2016)
Proposition 55 extends for 12 years the income tax surcharges on individuals with incomes over $250,000 and families with incomes over $500,000. It raises $4 billion to $9 billion annually. These funds are dedicated to public schools, Medi-Cal and the state’s rainy day fund. The Democratic Party and a broad array of education and health groups support it. It is opposed by the Republican Party, the California Chamber of Commerce and the National Federation of Independent Businesses (NFTB). https://ballotpedia.org/California_Proposition_55,_Extension_of_the_Proposition_30_Income_Tax_Increase_(2016)
Proposition 56 increases the state’s cigarette tax by $2.00 from 87¢. This will generate between $1 billion and $1.4 billion in revenues. The funds are dedicated to anti-smoking, cancer research, physician training, dental disease prevention, and health care for low income Californians. California (87¢) has one of the lower cigarette taxes in the country. New York is $4.35; Washington State is $3; Arizona is $2, and Texas is at $1.40. It is supported by health, education, business and labor groups, and the Democratic Party. Its opponents include the Tobacco industry, Republican Party and business and taxpayer groups.
Proposition 61 requires Medi-Cal and other state health programs such as CAL-PERS (for public employees) to negotiate drug company prices at a rate no higher than the Veterans Administration pays. The sponsor and funder is the AIDS Health Care Foundation of Los Angeles. It is supported by AARP, CNA (California Nurses Association), and the LA Urban League. Opponents include the Pharmaceutical Manufacturers Association, an array of provider and veteran’s groups and the Republican Party. https://ballotpedia.org/California_Proposition_61,_Drug_Price_Standards_(2016)
Proposition 64 would legalize marijuana for recreational use and its cultivation. It would tax sales (15%) and cultivation ($9.25 per ounce of flowers). Local governments can also tax and regulate. The funds raised by the initiative would be used for research and education on drug use, highway safety, and drug treatment. It is supported by the Democratic Party, some in law enforcement, some unions, California Medical Association, many civic organizations, and Libertarian Party candidate Gary Johnson. It is opposed by Senator Dianne Feinstein, the Republican Party, many in law enforcement, and the California Hospital Association. https://ballotpedia.org/California_Proposition_64,_Marijuana_Legalization_(2016)
Prepared by: Lucien Wulsin