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Medi-Cal and Health Program Budget Cuts

Country: 
USA
Partner Institute: 
Institute for Global Health (IGH), University of California Berkeley/San Francisco
Survey no: 
(1)2003
Author(s): 
Health Policy Issues: 
Others
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no yes no no no

Purpose of health policy or idea

Due to a budget deficit of $34.6 billion facing the state of California, Governor Gray Davis has proposed a budget plan that reduces total state spending for 2003-2004 to $96.4 from $101.3 billion.  The 5% budget cut for health services, including the state-sponsored Medi-Cal program, means the funding will be reduced from $32.2 to $27.7 billion.

More specifically, the Medi-Cal budget will be cut by $1.4 billion, the true effect of which is closer to a $2.6 billion reduction in funding since it is a program that receives matching federal dollars. The proposed reduction is spread across 5 areas of the program: eligibility and enrolment (20.6%), benefits (19.9%), provider payment rates (19.9%), county administrative funding (17.6%), and purchasing and management (22%).

Impacts of Medi-Cal Cuts:

  • Current eligibility for working families that earn 100% federal poverty level ($18,000 for a family of four) will be cut to 61% of the federal poverty level ($12,000 for a family of four). Department of Health Services estimates this will affect the eligibility of 350,000 applicants over 2002-2003 and 2003-2004.
  • Medi-Cal and Healthy Families outreach activities focused on enrolling low-income children in public schools, community organizations, or through the media will be eliminated.
  • Enrollment is expected to decrease by 209,000 to 6.3 billion people and the number of uninsured is expected to increase by as much as 550,000 adults due to the cuts.
  • The following health benefits for adults would be eliminated: dental care ($210 million in savings), psychology, medical supply services, rehabilitation centers, occupational therapy, podiatry, chiropractic, and acupuncture.
  • Dental benefits to children will be reduced from two cleanings per year to one and allowable dental office visits will be limited without prior authorization.
  • Payments to nursing homes would be reduced by 15%.
  • Payments to providers will be reduced by 16.7%, bringing rates down to the level paid in 2000.  In comparison to Medicare, the federally-funded insurance for the elderly, physicians of Medi-Cal patients receive 65% of what Medicare pays for the same service.  Due to low reimbursement rates, there is only 50% of the federally recommended minimum number of physicians serving the Medi-Cal population - about 38 for every 100,000.  The cuts will most likely further reduce the number of providers who accept Medi-Cal patients.
  • California county budget allocations to determine eligibility and maintain Medi-Cal cases will be reduced by 20%.  Counties will also now be required to pay 10% of preventive health services for children enrolled in Medi-Cal.
  • Proposed expansion of health insurance coverage to parents of children enrolled in the state's Healthy Families program will be delayed until July 2003 ($160.5 million in fund savings).

Impacts on related health programs for vulnerable populations in California:

  • Reduced spending on emergency medical services by $847,000
  • Reduced spending public health education campaigns and the youth anti-tobacco program by approximately $35 million
  • Reduced spending on the Cancer Research Program by $12.5 million
  • Elimination of the Adult and Children's System of Care mental health program which serves those with severe mental health disorders ($42.6 million in savings)
  • Reduced services for developmentally disabled individuals ($52 million in savings)
  • Increase in the Healthy Families budget by 23% for a total of $672 million to help with caseload and transition families from this program to Medi-Cal
  • Creation of an on-line enrollment site for children eligible for Medi-Cal or Healthy families ($124,000)
  • Increase in the Child Health and Disability Prevention program by $2.7 million to streamline enrollment of children into Medi-Cal and Health Families.  A large number of children will still not be eligible for either program due to their immigration status.

The greatest impact of this proposal is on low-income individuals and families at a time where this population in California is growing due to an economic recession.

Main points

Main objectives

Reduce the California state budget deficit by cutting spending on state-funded health programs.

Type of incentives

Reduce enrollment, spending on health services, and lower payments to providers.

Groups affected

Low income children and individuals, Disabled individuals, Providers

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Characteristics of this policy

Degree of Innovation traditional neutral innovative
Degree of Controversy consensual highly controversial highly controversial
Structural or Systemic Impact marginal fundamental fundamental
Public Visibility very low high very high
Transferability strongly system-dependent system-dependent system-neutral

Political and economic background

At the federal level, funding for health care programs has also been reduced due to a projected federal deficit of about $300 million for 2004.  Matching grants to California have been reduced from 51.4% to 50% and payments to public hospitals have been reduced from 150% to 100% of the Medicare rate.  The government also adopted an option that allows states to reduce the benefits they provide to state-insured individuals in order to enroll additional people.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no yes no no no

Origins of health policy idea

The driving force behind this proposal is primarily the California State budget deficit of $34.6 billion which needs to be balanced. This legislative proposal was generated by Governor Gray Davis' administration in California in January of 2003.  The health and human services programs account for 27% of the state budget.  However, Medi-Cal expenditures have grown more than 60% over the last decade due to increases in enrollment and health care costs. This is also a significant factor since controlling healthcare costs is a major national concern. At a local level, rising costs and less availability of state and federal funds have also driven counties in California to reduce services to vulnerable populations. 

Significant changes to current legislation proposed in Gov. Davis' plan include rollback of the 1931(b) program that expanded enrollment of Medi-Cal to two-parent working families who earned a 100% of the federal policy level ($18,000 for a family of 4), and decreasing the reimbursement rates to nursing homes, physicians, pharmaceutical companies and hospitals. 

This proposal is likely to be a short-term reaction to budget deficits and growing healthcare costs.  In addition, the United States has an aging population which will require state and federal resources for health services under the Medicare program.  Therefore, some program cuts to curb overall health spending by states has been expected by policy analysts.

Stakeholder positions

The stakeholders of this legislation proposal are mid to low-income families, taxpayers, disabled individuals, the elderly, and health care providers and workers.  These groups were not publicly involved in developing this proposal.  The items in this proposal are currently under debate in the state legislative process.  Alternative budget plans have been proposed by the state Senate and Assembly that differ from the Governor's proposal. Both houses of state legislation rejected most of the proposed Medi-Cal budget cuts for this year in January of 2003.  The full Senate and Assembly are in the process of reconvening to consider amendments to the proposal.  Some Democrat members have stated that they will not consider cuts unless tax increases are considered as well (e.g. a 5% fee on alcoholic beverages sold).  Republicans, however, said they will not support any tax increases included in Davis' plan. The Legislative Analyst's Office has not rejected the plan but considers it a credible starting point for the legislation to set funding priorities.

Lobbying parties for the affected groups mentioned above have not accepted this plan.  Advocates for health care, welfare, and people with disabilities opposed the budget cuts for health program during Assembly budget subcommittee hearing on the proposed cuts.  These representatives of various stakeholders (advocates, representatives of medical supply companies and some subcommittee members) said the cuts would not resolve the budget crisis as they would result in forcing people to seek more expensive treatment in emergency rooms and increasing the number of uninsured who have no where else for treatment except these facilities.  The Medi-Cal Policy Institute and the California Healthcare Foundation have published policy evaluations of the fundamental impact this plan could have on the vulnerable populations of California.  Alliances have been formed to voice the opposition to Gov. Davis' proposed cuts by several stakeholder interest and lobbying groups.  Several of these groups, including the Pacific Institute of Community Organizations, have protested at the Capitol in California and are now strategizing on how to lessen the impacts on the working poor.  In addition, leaders of the California Medical Association plan to work with union and business leaders to address the reimbursement rate reductions for physicians and health care reform. In order to mediate the concerns of so many interests groups, the Legislature has held hearings to discuss the budget cuts.

Influences in policy making and legislation

Governor Davis' budget proposal will lead to a formal piece of legislation by late June of 2003.  Revisions to the proposal are still being discussed by the Assembly, Senate, and Legislative Analyst. 

The official process for formalizing the Governors budget first involves the Senate Budget and Fiscal Review Committee and the Assembly Budget Committee, the two committees that hear all Budget Bills. They assign the items in the bill to several subcommittees (by major subject areas such as Education or Health and Welfare) which conduct budget hearings. These hearings generally begin in late February soon after the Legislative Analyst issues the "Analysis of the Budget Bill".  Partisan consultants, lobbying groups, and the public may provide testimony at these hearings as well.  The Legislative Analyst is appointed by the Joint Legislative Budget Committee and is charged with providing a nonpartisan analysis and recommendations for changes to the Governor's budget plan.

The California Department of Finance proposes revisions to the budget proposal by May and the subcommittees report their recommendations.  The proposal then needs to pass through the Assembly and Senate Houses by two-thirds of the vote in each case.  A Budget Conference Committee is charged with working out the differences between the version of the bill in the two Houses which then goes through another voting cycle in the Assembly and Senate.  The Budget Bill is then sent to the Governor who can reduce or eliminate items of appropriation on the bill.  The Budget Bill is passed by the Budget Act and is required to have completed the legislative process by June 15th.

Adoption and implementation

Adoption of the budget plan for the health programs will mostly involve the county administrative resources, providers, and the California Department of Health and Human Services.  The Governor's office and HHS will most likely moderate the process.  Since this plan will become part of the state legislation, those involved in the execution of services affected by the plan will have no choice but to follow the budget outline for 2003-2004.  The groups needed to implement the plan were involved in the legislative process as opinion leaders and evaluators, most of whom were not in favor of the impacts the cuts will have on vulnerable populations.

Mid to low-income families will be affected since the planned expansions of health coverage to these groups have been "delayed".  In addition, long-term care facilities that received payment for disabled and elderly patients will receive reduced payments as well as lose reimbursement for some vulnerable patients.  These factors may exacerbate the growing uninsured problem in California as well as reduce the types and number of providers who serve vulnerable populations.

Implementation is legislated by the Budget Act, so a revised form of the Governor's proposal will definitely be implemented.  Given the budget deficit of $34.6 billion for this year, it is likely further cuts and tax increases will be necessary in the next year as well since California has no reserves.  Incentives to implement this plan come from a resistance to increasing taxes and the need for controlling health care costs.  However, due to the significant impact of this plan on the welfare of the indigent and elderly, the public and interest groups representing the stakeholders of the proposal will most likely oppose the implementation and slow down the adoption process.  Though the Governor has proposed some increases in programs such as Healthy Families and Child Health and Disability Prevention, the impacts on improving the coverage and well-being of low-income children by these increases are evaluated to be negligible.  The opponents of this plan are not appeased, however no reasonable alternatives to addressing the budget deficit have been adopted as of yet.

Incentives that may appease and convince the opponents of this proposal could include better disease management programs that could reduce costs of chronic care, less expensive enrollment processes for Medi-Cal members, or taxes on vehicles or alcohol to raise funds.  However, these incentives appeal to certain interest groups so there is likely to be opposition to the bill for many different reasons.

Monitoring and evaluation

The Budget Act oversees the administration of the Governor's budget.  The impacts on affected groups and developments related to the budget are evaluated by independent policy agencies such as the California Healthcare Foundation and the Medi-Cal Policy Institute, both of which have published evaluations on the proposed cuts.  The evaluations indicate a negative impact of the plan on vulnerable population and raises concerns about the welfare of such people in a time where there is a growing need for health coverage.  The evaluations have not yet led to a change in the proposal.

Results of evaluation

The policy may achieve its immediate objective of reducing the state budget.  However, it will have a significant negative impact on several groups in California by decreasing several primary healthcare benefits and reducing the number of eligible people for state-funded health insurance.  The likely increase of 550,000 uninsured individuals in the state will further drain resources by putting additional strain on emergency rooms and hospitals which are required to serve individuals regardless of insurance.  This effect, compounded with the cuts in federal and state funding to hospitals for charity care will further reduce the options for vulnerable populations seeking urgent health care.  In addition, the cuts will decrease the overall public health of the state by eliminating education programs, preventive health benefits, and media campaigns for relevant health issues. 

Expected outcome

The policy may achieve its immediate objective of reducing the state budget.  However, it will have a significant negative impact on several groups in California by decreasing several primary healthcare benefits and reducing the number of eligible people for state-funded health insurance.  The likely increase of 550,000 uninsured individuals in the state will further drain resources by putting additional strain on emergency rooms and hospitals which are required to serve individuals regardless of insurance.  This effect, compounded with the cuts in federal and state funding to hospitals for charity care will further reduce the options for vulnerable population seeking urgent health care.  In addition, the cuts will decrease the overall public health of the state by eliminating education programs, preventive health benefits, and media campaigns for relevant health issues. 

References

Suggested citation for this online article

. "Medi-Cal and Health Program Budget Cuts". Health Policy Monitor, 20030501. Available at http://www.hpm.org/survey/us/d1/8