County Health and the Vital Role of Federal Waivers in California

County Health and the Vital Role of Federal Waivers in California


County Roles in California

Determine Medi-Cal eligibility

Pay match for behavioral health and county inpatient hospitals

Deliver or pay for indigent health

Deliver or pay for mental health

Deliver or pay for substance abuse treatments

Deliver or pay for public health services

Operate managed care plans for Medi-Cal patients at their option


Before 1965, California’s 58 counties were responsible for health care to the poor; this was a carry-over from Elizabethan poor laws as codified in a county’s Welfare and Institutions Code §17,000 obligation. California under Governor Pat Brown was an early and expansive adopter of the new federal/state Medicaid program, passed in 1965 and adopted in California in 1966. Many counties’ public hospitals closed as the Medicaid and Medicare programs came on line and expanded.[1]

In the early 70’s then Governor Ronald Reagan and Democratic legislative leaders agreed to expand the MediCal program to cover working poor adults (they were not then eligible for a federal Medicaid match as they were not disabled). In California this group is referred to as the Medically Indigent Adults (MIAs).

During the late 70’s, California birthed a new tax-cutting craze, Proposition 13. It rolled back and then froze the growth of local property taxes, which financed public health, public education, public safety and public social services at the city and county levels. The authors of this and follow up tax cutting initiatives were the renowned Howard Jarvis and Paul Gann. During then Governor Jerry Brown’s first tenure, financing for county health programs shifted from local property taxes to state taxes, which were then rebated to the counties, and counties closed even more public facilities, leaving only a handful of the larger public hospitals still alive.[2] Public education was also now heavily funded at the state level as well and competed with health, social services, higher education and public safety for the available state General Fund tax base in annual budget tussles.[3]

In 1982-3 responding to the nation’s sharp and deep 1982 recession and a large state budget deficit, the state of California, then under Governor Jerry Brown’s leadership, terminated MediCal coverage for non-disabled working adults (MIAs) due to the lack of federal matching funds. It shifted financial responsibility from the state back to the counties along with a small block grant.[4] While this caused great hardship for patients with diabetes, hypertension and other conditions requiring consistent outpatient care,[5] it rejuvenated the remaining public hospitals, which had new funding, many new patients (to the point of dangerous overcrowding), and a new raison d’etre.

The MIA transfer was paired with selective contracting (also known as prudent purchasing) for hospitals and prescription drugs and with pilots testing mandatory managed care for MediCal subscribers. Health Planning restrictions on the acquisition of costly new hospital equipment and buildings were repealed as part of this deregulatory regimen. Comparable purchasing reforms were authorized for private sector health plans, and new PPOs (Preferred Provider Organizations) took form quickly displacing the older fee for service insurance plans. Virtually all California employees with private coverage were enrolled in managed care through HMOs or PPOs. The purchasing reforms cut hospital rates and undercut the “cost shift” which hospitals relied on to cover the costs of the uninsured. One hospital executive described it thus; “we were fighting rate regulation, and we got blindsided by market competition”. Competition, block grants, HMOs and de-regulation were the order of the day.

Under the MIA transfer each county decided its own eligibility rules, covered services and delivery system.[6] State funding was highly inequitable[7] among the counties (based on old funding formulas with no adjustments for demographic changes) and inadequate[8] in that it failed to keep up with medical inflation and the growth of the county and the state’s uninsured. It was subject to the political and economic vagaries of the state’s annual need to balance its budget so there was great uncertainty as to funding from year to year.[9]

Patient dumping scandals in hospital emergency rooms where patients died ensued; specialty doctors refused call, and closures of private emergency rooms and trauma centers became increasingly common; these were particularly centered in Los Angeles.[10]

Beginning in 1988, California counties, the state and the federal government began to develop stopgap funding to shore up the local safety net. California’s public hospitals secured federal DSH matching funds for their inpatient care to the uninsured (using a county match).[11] This approach was expanded to private hospitals, initially using the county match as well.[12] Public hospitals secured needed capital funding to modernize their facilities using the same federal/county match.[13]

Beginning in 1995, Los Angeles County, which at the time was severely financially troubled and in danger of closing several of its public hospitals, received a federal match for their outpatient care to the uninsured.[14] That initiated a series of five-year §1115 Medicaid waivers for public hospitals’ care to the uninsured, scheduled to end in 2020.[15]

Beginning around 2000, California counties, frustrated with inaction at the state and federal levels, began to reconfigure their delivery systems for the uninsured.[16] While Healthy San Francisco may be the most familiar, San Mateo, Santa Clara, Alameda and Contra Costa developed similar programs, relying on their local managed care plans to manage and coordinate patient care, integrating their community clinics and public hospitals, shifting the locus of care from the emergency room to the primary care clinic, and introducing subscriber fees for the higher income uninsured. Under California’s 2005 waiver, 10 pilot counties secured a federal match to beef up and better integrate their delivery of primary care to the uninsured, moving from the episodic, emergency room centered systems towards better managed care. Under California’s 2010 federal waiver, all California counties could seek a federal match for their care to the uninsured indigent who were either citizens or legal permanent residents.[17] Fifty-four of fifty-eight California counties participated.

Under the 2010 waiver, counties adopted eligibility, application and enrollment systems that allowed them to pre-identify and enroll those who would be eligible for the fully federally financed Medicaid expansion and Covered California in 2014. During the interim three to four years, counties provided the local match. Over 650,000 uninsured county patients who were Medi-Cal eligible had enrolled by late December 2013; they were then automatically shifted into MediCal on the first of January 2014.[18] Counties and their uninsured low-income patients had 3-4 years of experience with an enrollment system and reformed and enhanced delivery system before Medicaid expansion began on January 1, 2014.

After the ACA was implemented, enrollment in county health systems collapsed (for example, in Orange and San Diego it fell from 35,000 to 40,000 individuals to about 300 to 400).[19] The state shifted the resulting budget savings to other more urgent social service needs.[20]

To compete successfully, county hospitals had to develop strong primary care feeder networks, improved quality outcomes and well-managed patient care. The episodic emergency-room centric delivery systems had to evolve quickly.  California county hospitals and community clinics had 3-4 years of planning, preparation, funding and execution of the new delivery system under the 2010 waiver, and providers in the ten pilot counties had 6-7 years to prepare under the 2005 and 2010 waivers. The 2015 waiver gives additional financial incentives for county facilities to complete the transformation of providing better patient health outcomes at greater cost effectiveness.[21]

Behavioral health: In MediCal, mental health and substance abuse treatments are each separate county responsibilities. The rationale is that this is specialty care, requiring unique provider networks and very different treatments than traditional medical services based in doctor’s offices and hospitals.[22] In the past, community-based behavioral health care had been poorly funded, and as a result the services were quite limited in many counties.

California’s finances mental health by transferring a portion of the state’s sales taxes and vehicle license fees to the counties (realignment), and the counties match this funding for Medicaid services, under federal and state rules and oversight.[23] Each county designs and administers its own mental health program, contracting with a mix of local public and private providers. Some California counties contract with a commercial specialty mental health plan, while others administer the program in house. There is wide variability in effectiveness, and many of those with serious mental illness and substance use disorders are not being reached.[24] A similar but separate program is in place for substance abuse disorder treatments.

The fractured interfaces between the local managed care program and the county mental health agency can be problematic for behavioral health patients. The county mental health agency is responsible for mental health care to individuals with severe and chronic mental illness.  The subscriber’s MediCal managed care plan(s) is responsible for physical health and for prescription medications to individuals with severe and chronic mental illness, and for mental health to patients with mild or moderate mental illness. This creates grey and fragmented zones of patient, plan and provider confusion, impairing effective treatment and blocking important patient information sharing.

A third local agency is responsible for the MediCal patient’s drug addiction treatment, where warranted. In most counties, these programs were severely underfunded and the services extremely limited prior to the ACA, and the state’s 2015 Medicaid waiver.[25] A patient with mental illness and opioid addiction would need to successfully navigate three separate local entities to get the care and treatment they need.

Under the 2015 Medicaid waiver, counties, the state and the federal government agreed to expand California’s behavioral health to a full complement of necessary services with some incentives under the waiver to better coordinate care for those needing the most intensive care.[26] Counties are building out these services now, and some county behavioral health plans are doing exemplary work in coordinating fragmented care for those with the greatest needs.[27]


Prepared by: Lucien Wulsin Jr.

Dated: 4/25/18




[1] Dallek, Geri and Brown, E.R., Public Hospitals in Crisis in California (Institute of Governmental Studies, University of California, 1981); The Quality of Medical Care for the Poor in Los Angeles County Public Hospitals (1987)

[2] Dallek and Brown, Public Hospitals

[3] Under the Governor’s Proposed Budget Summary 2018-19, K-12 education receives $56 billion, Health $41 billion, Human Services $20 billion, Higher Education $16 billion, Corrections $15 billion and Transportation $14 billion in state tax funding. California’s Proposition 98 was passed by the voters to assure that K-12 education would receive 42% of the state’s General Funds.

[4] Kelch, Caring for the Medically Indigent Adults in California –a History (California Health Care Foundation, 2006) at and Blue Sky Consulting Group, County Programs for the Medically Indigent in California (California HealthCare Foundation, 2009)

[5] Lurie, Nicole; Ward, Nancy; Shapiro, Martin; Brook, Robert. (1986). Termination of MediCal Benefits. New England Journal of Medicine - N ENGL J MED. 314. 1266-1268. 10.1056/NEJM198605083141934.   Brown and Cousineau, Loss of Medicaid and Access to Services (1991) at

[6] Wulsin and Tuttle, California’s Safety Net (Insure the Uninsured Project, 2008); Wulsin, Testimony to the Little Hoover Commission (2006) at

[7] Ibid

[8] Ibid

[9] Ibid

[10] Assembly Special Committee on MediCal Oversight, Oversight Hearing on Patient Dumping of the Medically Indigent (Nov. 19, 1986), Assembly Special Committee on MediCal Oversight, Oversight Hearing on the Financial Problems of Trauma Centers in Los Angeles County (Oct. 22, 1987); Assembly Special Committee on MediCal Oversight, Oversight Hearing on Access to and Funding for County Health Services in Los Angeles County

[11] SB 855 and 1255 (Robbins). See Huen, California’s Disproportionate Share Provider Program (Medi-Cal Policy Institute, 1999)    

[12] Ibid

[13] SB 1732 of 1988, Welfare and Institutions Code section 14085.5

[14] Zuckerman, The Los Angeles County Waiver 1995-2000: Progress by Room for Improvement (Urban Institute, 2001)  

[15] Wulsin et al, Analysis and Summary of the §1115 Waiver Renewal (ITUP, 2016) 

[16] Long, County Efforts to Cover the Uninsured: a Six County Study (Feb. 2002) at and Wulsin et al, Care, Coverage and Financing for the Remaining Uninsured in 6 Southern California Counties (ITUP, 2015) at

[17] Kaiser Family Foundation, California’s Bridge to Reform Waiver (Oct. 2011) at and Wulsin, ITUP Summary of California’s §1115 Waiver (Jan. 11, 2011) at

[18] Medi-Cal’s Optional Adult ACA Expansion Population – October 2016. Medi-Cal Statistical Brief.

[19] County interviews for Wulsin et al, Care, Coverage and Financing for the Remaining Uninsured in 6 Southern California Counties

[20] AB 85 of 2013

[21] Wulsin et al, Analysis and Summary of the §1115 Waiver Renewal (ITUP, 2016)

[22] Watson and Klurfeld, California’s Mental Health System (ITUP, Aug. 2011) at

[23] County Behavioral Health Revenue Update (California Institute for Behavioral Health Solutions, May 2016) at  

[24] Technical Assistance Collaborative, California Behavioral Health Needs Assessment (February, 2012) at Behavioral Health Barometer, California 2015; Behavioral Health Barometer 2014, California at Scheffler et al, The Impact of Realignment on Utilization and Cost of Community Mental Health Services in California (2001) at  

[25] Ibid.  

[26] Wulsin et al, Analysis and Summary of the §1115 Waiver Renewal (ITUP, 2016); Connolly, California’s Drug Medi-Cal Waiver is a Big Deal; Here’s Why (ITUP, Aug. 2015); Connolly, Lessons Learned in LA County (Feb. 2018) at    

[27] Connolly, Integration in California’s Safety Net: Six County Profiles (ITUP, 2015) Hong, Breaking Down the Silos to Serve the Whole Person (Feb. 2018) at

Deb Haaland for Congress

Health Coverage for California’s Immigrant Communities