Fiscal Fitness: How States Cope: California Medicaid struggles to hold on with projected $8 billion deficit
Fiscal Fitness: How States Cope
California Medicaid struggles to hold on with projected $8 billion deficit
Many optional services already have been cut, several of the planned provider rate reductions can't be enacted due to court injunctions, and eligibility can't be cut. In addition, the state faces a projected budget deficit of $8 billion over the next 16 months. This is the dire situation that California's Medi-Cal program is currently facing.
According to a California Legislative Analyst's Office March 2009 report, the state's economic and revenue outlook continues to deteriorate, even after a budget package was adopted by the legislature and governor in February to address the state's monumental $41 billion budget shortfall. The 18-month budget included almost $13 billion in tax hikes and $15 billion in spending cuts, including some reductions to the Medi-Cal program.
"Even with the state budget being approved, the budget situation continues to grow worse," says Toby Douglas, chief deputy director of the California Department of Health Care Services and the state's Medi-Cal director.
Mr. Douglas says the Medi-Cal program is under "continual pressure" to reduce costs. "With Medi-Cal being the second-largest general fund driver in the state, next to education, it's hard not to look at Medi-Cal as being part of the solution in terms of decreasing the overall budget deficit," he says. "That's the No. 1 challenge."
The state is clearly not collecting enough tax revenue to support its nearly $100 billion general fund. However, California is expected to obtain as much as $30 billion in new funds from the federal stimulus package. The Medi-Cal program alone is expected to receive $8.2 billion through 2010.
Medi-Cal is unable to go forward with all planned provider payment reductions made over the last year and a half. "In many cases, these have gone to federal court. There have been injunctions on our ability to implement those payment reductions," says Mr. Douglas. "For the most part, the reductions are not in effect. Since reductions can't occur in payments, that has put pressure on other parts of the program."
The court injunctions were based upon the supremacy clause that limited the ability of the state to reduce payments under a state/federal program. "The court said that the federal rules on access efficiency and the quality of services override the state's ability to make these types of reductions," says Mr. Douglas. "It will be going to the Ninth Circuit for another hearing and could eventually go to the Supreme Court. This has implications beyond the state Medi-Cal program, [and] for Medicaid across the country."
As part of the enacted budget, nine optional benefits will be cut as of July 1, including adult dental services and many mental health benefits for adults. "That's clearly going to be a challenge for our provider community, our beneficiaries, and us," says Mr. Douglas. "These are essential benefits that we can't provide due to the fiscal environment." Eliminating these optional benefits will save the state nearly $130 million in 2009-2010.
However, Mr. Douglas notes that the inability to make any reductions in eligibility, though this is difficult from a fiscal standpoint, will maintain the safety net for Californians in need. "Medi-Cal plays an essential role during this downturn. It is a safety net program; that's what it is here for," he says.
A significant portion of the stimulus money will go to offset general fund expenditures outside of the state's Medicaid program. "It's also allowing us to pay for some growth in caseload, as well as preserve eligibility where it was in July 2008," Mr. Douglas says. "That is a benefit from a policy standpointto make sure the most vulnerable Californians still have the ability to receive Medi-Cal."
Reductions now difficult
"Since the fiscal stimulus, which brought in so much money, also has conditions around maintenance of eligibility, payment reductions are under injunction, and we have pretty much reduced optional benefits as much as we can, where do you turn to make reductions in the Medi-Cal program?" asks Mr. Douglas.
The state's Medicaid caseload is continuing to grow, with unemployment rates approaching 11%. "In general, our caseload is growing more for the healthier populations, but underlying that, we still have a disabled population whose costs are growing at a faster pace than the general Medi-Cal program. That puts pressure on the program, too," says Mr. Douglas.
Since the onset of the recession, enrollment has been steadily increasing, especially among individuals getting onto Medicaid due to cash assistance programs, mainly families. "We are not seeing dramatic increases, but it is a higher rate than we were seeing before," says Mr. Douglas. Enrollment has increased to 6.8 million Californians, up nearly 1 million people since last May, and is projected to exceed 7 million by July 2009.
Before the American Recovery and Reinvestment Act of 2009 was passed, the governor's proposed budget included many eligibility reductions, including reducing a family's eligibility from 100% of the federal poverty level (FPL) to 70%, reducing the Aged, Blind, and Disabled program from 127% to 100% of the FPL, and reducing eligibility for undocumented immigrants, so they may only receive services for emergency care. "Eligibility was part of the solution, but can't be now, because we must stay eligible for stimulus funds," says Mr. Douglas.
Another planned cut that Mr. Douglas says "could potentially still be on the table" involves newly qualified immigrants. The state would no longer use state dollars to cover services for individuals who have been in the country for less than five years.
In January 2009, California began requiring midyear eligibility determinations for children enrolled in Medi-Cal, but legislation was signed by the governor to suspend this change in March, as a result of the stimulus requirements.
Looking forward, Medi-Cal is exploring all of its options to reduce expenditures, including cost-containment initiatives. "We are looking at how we can better manage the care of high-cost populations, the different interventions that we can do, and exploring care management programs implemented by other states," says Douglas.
One obstacle is that creating the infrastructure for more integrated delivery systems for persons with disabilities requires an initial investment, though it could lead to savings over time. "So, the question is, in this environment, can we take the time to develop that system knowing that other states have experienced benefits from moving to those types of approaches?" asks Mr. Douglas.
The state also is looking at changing the way it pays providers, in the hope of being able to overcome the court injunctions. "We are doing a lot to be more provider-friendly," says Mr. Douglas. Other planned changes include allowing providers to enroll in Medi-Cal online, implementing a new claims processing system so providers will receive payment more quickly, allowing providers to obtain prior authorizations electronically, and allowing providers to electronically attach any documentation that is required as part of a claim.
"These initiatives are not about cost savings, but ensuring that we are a program that is responsive to our providers' needs. That will also help our beneficiaries," says Mr. Douglas.
Looking at the big picture, Mr. Douglas says the state's rapid decline of revenues is an extremely challenging situation, and California is in a worse position compared to other states. "This is a national problem that most states are facing. It was important for the federal government to step in and provide the fiscal stimulus so we can continue to provide vital services."
Public reaction negative
Still, the public's reaction to the cuts in optional services has been predictably negative. "We understand the severity of these reductions, as many of our adult Medi-Cal beneficiaries will be without the vital services they have relied on to preserve and improve their health, but the state's tough budget situation requires that the Medi-Cal program be part of the fiscal solution," says Mr. Douglas.
Mr. Douglas says, looking further ahead, the end of federal assistance is a major concern, especially if revenues continue to decline. "It's an important question that must be raised soon, but currently it's difficult to think beyond December 2010. Right now, we are just working to stay in compliance to receive federal stimulus money and looking at how we are going to balance our budget."
Contact Mr. Douglas at [email protected].
Many optional services already have been cut, several of the planned provider rate reductions can't be enacted due to court injunctions, and eligibility can't be cut. In addition, the state faces a projected budget deficit of $8 billion over the next 16 months. This is the dire situation that California's Medi-Cal program is currently facing.Subscribe Now for Access
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