Medi-Cal and Health Program Budget Cuts Supplement

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

Despite dire predictions, California?s 2003-04 budget imposes relatively moderate cuts on health care programs, although the impact on vulnerable populations is still expected to be negative. The highly politicized nature of the budget debate, and politicians? awareness that cutting health care programs in the state is highly unpopular may have helped to ward off deeper cuts to Medi-Cal and similar health programs.

Purpose of health policy or idea

In 2003 California faced a contentious budget debate that polarized political parties and set the platform for the fall recall election of Governor Gray Davis.  Both California's budget struggles and the ensuing political battles were closely watched by the nation and were seen as a potential bellwether for conditions around the country.

As described in survey round #1, when then-Governor Davis proposed a budget for 2003-2004 in January, there was a deficit of $38 billion.  In order to balance the budget, tax increases and program cuts were proposed.  Health programs such as Medi-Cal (California's Medicaid program for the health insurance of the poor) and Healthy Families (California's State Children's Health Insurance Program, or SCHIP, which provides health coverage to low-income children in families that earn too much to be eligible for Medi-Cal.) faced significant cuts.

In this survey period, California's legislators finally reached agreement on a budget.  Following is a brief overview of the process:

California's constitution requires a two-thirds majority for any budget or tax increase to be passed.  The two-thirds requirement can make the debate over budgets even more contentious as they can be more readily held up by party politics.  For example, even though Democrats are the majority in California's Legislature the Republicans are able to exert substantial power to block legislation with the two-thirds requirement. This is what happened and led to a months-long stalemate, causing California to begin its fiscal year without a budget (fiscal year begins in July).  Eventually, in late July, a budget that both Democrats and Republicans could agree on began to take shape.  Governor Davis signed it into law on August 2. According to Administration officials, the budget impasse meant a costly delay, as the State lost $500 million because it continued to spend money at last year's levels during July, the first month of the fiscal year.

The budget deficit was met through a combination of spending reductions (45%), borrowing (33%), accounting maneuvers such as fund shifts (11%) and revenue assumptions (11%).  While the budget is balanced for the current fiscal year, there is already a deficit of $8 billion to be dealt with in 2004-2005.  This is because this year's budget relied on many one-time spending decrease measures.

The budget includes a $12 billion, or 10.8%, in reduction to state expenditures, with the deepest cuts and savings coming from state government operations, education and social service programs.

Main points

Main objectives

The budget cuts were directed at decreasing California's budget deficit.  There are basically two instruments used to correct budget deficits:  increase taxes (to boost revenues) or cut spending.

Type of incentives

The budget fight was complicated by political maneuverings.

Groups affected

Low income children and individuals, disabled individuals, State agencies providing social and health services to the community, Health care providers

Innovationsgrad	traditionell		innovativ
Kontroversität	unumstritten		kontrovers
Strukturelle Wirkung	marginal		fundamental
Medienpräsenz	sehr gering		sehr hoch

Political and economic background

State budget deficits are not uncommon; in fact, many states are facing similar budget problems as California.   Also, the tools used to correct deficits - raise revenues or cut spending - are not uncommon.  However, California's budget debate was more contentious and politicized than usual because of the severity of the deficit and the finger-pointing that went on between political parties over where blame could be placed.  The political figure that received the greatest blame was former Governor Gray Davis.

Because of the highly politicized nature of this year's budget debate one could argue that it did represent a slight change in political direction.  There may be new accountability measures put in place for future years and there will certainly be sustained scrutiny directed towards the actions of elected officials.

In terms of health care spending, California's health system is facing some extreme financial constraints and any decreases in state spending could exacerbate this problem.

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Origins of health policy idea

As described in Survey #1, the driving force behind any proposed budget cuts is the substantial budget deficit.  In California, like many other states, increases in health expenditures have contributed to the large deficits.

Working from the budget former Governor Gray Davis proposed in January 2003, the political parties could not come together on an agreement until late July (one month into the current fiscal year).  Some say the process was characterized by the inability, or unwillingness, of Democrats and Republicans to compromise and that it wasn't until public pressure and political and economic damage seemed imminent that they began to enter into real conversations.  (In general, Democrats oppose spending cuts while Republicans oppose tax increases.)

Many sectors of the community rallied to oppose the tax hikes and program cuts.  For example, the American Association of Retired Persons in California (AARP California) has joined with the Congress of California Seniors, the Alzheimer's Association, the California Department of Aging, and several other groups to create the "Save our Safety-Net" (SOS) coalition, whose purpose is to vigorously oppose cuts to programs serving California's most vulnerable populations, including children, persons with disabilities, and the frail elderly.  This is just one example of the many advocacy and political action groups that have taken steps to oppose cuts in health care and other programs.

It is important to note that surveys have found the majority of Californians are willing to support targeted tax increases to maintain health programs and services.

Stakeholder positions

See Survey #1 for a full description of the stakeholders involved.  In general, the budget debate affects all Californians, but the stakeholders who were most likely to be affected by changes in health care funding were:  mid to low-income families, taxpayers, disabled individuals, the elderly, health care providers and workers.

While these groups were not publicly involved in developing the Governor's original proposal many of them were involved in the ensuing debate through advocacy organizations.

For example:

• advocates for health care, welfare, and people with disabilities and other vulnerable populations united in their opposition to the budget cuts for health programs. 
• the Medi-Cal Policy Institute and the California Healthcare Foundation published analyses of the fundamental impact this plan could have on the vulnerable populations of California.
• professional organizations, provider organizations as well as consumer groups were also involved in the campaign against the proposed budget.

The fact that in the final budget health and human services endured cuts of only 8.6% while K-12 education and higher education were assigned much higher cuts (47.5% and 17.1%, respectively) is worthy of note.  It is possible that health care fared better because of the work of health advocates and/or because of the political climate.

It is important to note that elected officials and political parties had a substantial amount to lose or gain with the budget debate.  As mentioned, the existence of the budget deficit was used to recall Gray Davis, so the political power of fiscal challenges can not be underestimated by political groups and individuals.

Recognizing that being seen as "anti-health care" can be political suicide most politicians, including those in the recall election, look for ways to be on the side of health advocates.  Consider the following:  the day before the recall election the last law that then-Governor Gray Davis signed - in front of a large media audience - was a piece of legislation to give more Californians access to health insurance. 

Influences in policy making and legislation

The budget was signed into law on August 2 and it is now in effect.  There will be another round of battles next fiscal year.  (Although if the economy is truly in recovery mode the battles may not be as contentious.)

Adoption and implementation

State agencies whose budgets are facing significant cuts will need to adjust their programs, staffing and output in order to cope with the budget cuts.  Counties will also need to cut their budgets, including funding for hospitals and clinics that provide health care services-from immunizations and prenatal care to emergency services.

Health care providers in Medi-Cal will need to adjust their practices to the 5% reimbursement rate cut, or drop out from the scheme altogether.  Medi-Cal patients will have less choice in the access to health care, and all the cost saving requirements in the budget will culminate in a more difficult time to be experienced by all, both patients and providers.

The incentive is really a negative one, as there is no option but to operate according to the budget.

Monitoring and evaluation

With the passage of the budget into law on August 2, there will not be any more revisions to the budget but there could be political maneuverings which impact its implementation (disbursement, etc).   In particular, with Governor-elect Arnold Schwarzenegger coming into office there is the potential for change.  The existence of mid-year adjustments also means that the budget composition could be modified to the potential detriment of public programs such as health care.

Expected outcome

Impact on health care budget and costs

Despite dire predictions, California's 2003-04 budget imposes relatively moderate cuts on health care programs.

Against the backdrop of the national focus on controlling health care costs, and controlling Medicaid spending, the enacted budget in California bridges the budget gap with smaller than expected changes in health care services.

Even so, the impact on vulnerable populations will still be negative.

• Cutting the already low Medi-Cal reimbursement rates to doctors means that it will become increasingly difficult for these patients, who are the poor and the disabled, to find doctors who will treat them.
• Requiring Medi-Cal patients to re-certify their eligibility for the program twice a year instead of once will lead to some deserving patients being disqualified because they did not return the form.   The resultant increase in uninsured patients will put further stress on the health care delivery system.

Furthermore, the cut in spending in government operations will inevitably lead to scale back of preventative programs, education programs and other public health initiatives which ultimately will negatively impact the health of the residents of the State.



The fact that the balancing of the 2003-2004 budget relied heavily on one-time measures for the sake of political compromise and expediency means the options available for balancing future budget gaps will be more constrained.

Impact on health care

According to the California Budget Project - a nonprofit, nonpartisan research group - the Governor's 2003-04 Proposed Budget "contained significant reductions to Medi-Cal program, most of which were rejected or revised by the Legislature."   Yet, the budget still makes a number of significant changes in health care programs, such as:

• 5% reduction in Medi-Cal provider reimbursement rates.  This change will mainly affect physicians, pharmacies and managed care plans.  However, nursing homes, rural health clinics and some other providers are exempt from the reduction. (The original proposal was for a much broader 15% reduction).
• elimination of the second year of Transitional Medi-Cal coverage to former welfare recipients.
• suspension of cost of living increase for welfare recipients.
• cost containment protocols in the area of dental, hearing aids and durable medical equipment.
• accountability measures in the determination of Medi-Cal eligibility such as requiring adults to submit forms twice per year to retain eligibility, so that re-determination to be conducted in a more timely manner.
• imposition of anti-fraud measures.
• shift in the accounting treatment of Medi-Cal expenditures from accrual to cash to reflect a reduction in 2003-04 expenditures of $813 million.
• inclusion of $46 million to fund Supplemental Wage Rate adjustment program that provides supplemental payments to nursing homes (a program which has been previously eliminated).
• a new "quality improvement assessment fee" that will be imposed on Medi-Cal Managed care plans and intermediate Care Facilities for the Developmentally Disabled.
• suspension of cost-of-living adjustment for long term care facilities  in 2004-05.

Source:  Much of the above information is excerpted from a California Budget Project analysis of the 2003-04 budget.

Health care advocates can claim some victory in that many of the cuts originally proposed did not make it into the Budget's final version.  In fact, according to the California Budget Project only 8.6% of the spending reductions in the final budget came from health and human services (compared to the 47.5% coming from K-12 education, and 17.1% from higher education).  Below is a brief description of some programs that were taken off the budget cut list in the final version:

Medi-Cal eligibility for working parents in low-income families and the aged, blind and disabled individuals was not reduced.

14 Medi-Cal optional benefits including adult dental care, medical supplies, physical therapy and psychology services were not eliminated as originally proposed.

Eligibility for free Medi-Cal was not lowered.

Republicans' attempt to amend the budget either to restrict or eliminate state funding for abortions through Med-Cal was also unsuccessful.

However, the final budget did eliminate the additional funding necessary to carry out the intended expansion of the Healthy Family Program coverage to uninsured parents of children eligible for Health Families Program.  The expansion will be deferred to 2006.

A California Budget Project analysis shows that health and human services and corrections funding were only 2 of 10 funding areas to see an increase in General Fund spending from 2000-01 to 2003-04.  Health and human services spending increased 17.9% during this period.

References

Reform formerly reported in

Medi-Cal and Health Program Budget Cuts Process Stages: none

Author/s and/or contributors to this survey

Carol Medlin, Insititute for Global Health, UCSF; Anita Lee, MPA candidate, UC Berkeley; Karin Wallestad, MPH/MBA candidate, UC-Berkeley; Sarah Weston, Institute for Global Health, UCSF

Empfohlene Zitierweise für diesen Online-Artikel:

Carol Medlin, Insititute for Global Health, UCSF; Anita Lee, MPA candidate, UC Berkeley; Karin Wallestad, MPH/MBA candidate, UC-Berkeley; Sarah Weston, Institute for Global Health, UCSF. "Medi-Cal and Health Program Budget Cuts Supplement". Health Policy Monitor, October 2003. Available at http://www.hpm.org/survey/us/d2/1