What We’re Watching For in the May Revision and Beyond

May 13, 2013

Governor Brown is set to release the May Revision of his proposed 2013-14 budget tomorrow, kicking off the sprint to a final budget agreement in June. The CBP will provide a series of analyses of the revision, including a same-day statement, a brief analysis of major changes and important new proposals — and the issues they raise — and a more in-depth scan in the days that follow. You can find all the latest updates and analyses here at California Budget Bites.

The following are five issues that we’ll be watching for in the Governor’s May Revision and the budget deliberations that follow in the coming weeks:

1.   Education Finance Reform

The issue: The Governor’s proposed Local Control Funding Formula (LCFF) seeks to make the state’s system of school finance more equitable by providing additional revenue to school districts with disadvantaged students, a topic the CBP recently examined in its chartbook on the LCFF. Under the Governor’s proposal, each school district would receive a base grant per student and — in addition — a supplemental grant based on the unduplicated number of English learners or students from low-income families as well as a concentration grant for the share of these students above 50 percent of district enrollment.

We’re watching for: potential changes to the mix of LCFF grants as well as any new accountability provisions. Will the May Revision preserve the additional dollars allocated for disadvantaged students? If the LCFF concentration grants are reduced or eliminated, will the freed-up dollars be used to provide larger supplemental grants? The May Revision may also include stronger accountability provisions in terms of addressing district spending of LCFF dollars. Our view is that policymakers should preserve additional dollars the LCFF would allocate for disadvantaged students, including concentration grants, and that school districts should be required to use these dollars to directly benefit the students for whom they are intended.

2.    Medi-Cal Expansion

The issue: As part of federal health care reform, the Governor’s proposed 2013-14 budget calls for expanding Medi-Cal — the state’s Medicaid program — to cover low-income adults who currently are not eligible. Our recent Medi-Cal chartbook provides an in-depth look at the program and the issues raised by the expansion. In January, the Governor presented two approaches to expansion — a county-based approach and a state-based approach — while also linking the expansion to his proposal to “capture” some funding that counties now use to provide health care to low-income, uninsured Californians. The Governor’s proposal also assumes a 10 percent cut in payments for Medi-Cal providers that was approved by state policymakers in 2011 and is currently pending in the U.S. 9th Circuit Court of Appeals.

We’re watching for: a call for a state-led expansion that leaves existing funding with counties, for now, and that reconsiders the cuts to provider payments. Counties and health care advocates are nearly unanimous in their push for a state-led expansion. Also, any savings that counties do realize, at least in the near term, should be prioritized for local health services given that millions of Californians will remain uninsured even after health care reform is fully implemented and will turn to the counties for care. Lastly, amid concerns that payment cuts on the eve of the Medi-Cal expansion could drive providers from the program at the very time when provider participation needs to increase, we’ll be watching for a call to repeal those cuts.

3.    State Revenue Projections

The issue: Ten months through the current fiscal year, the State Controller’s Office reports that total revenue is running ahead of the Governor’s January projections by $4.6 billion. The state’s revenue collections are prompting speculation about increased revenue forecasts for the upcoming 2013-14 fiscal year.

We’re watching for: updated economic and revenue forecasts. If there is a projected increase in General Fund revenues compared to January projections, what will the revised level of the Proposition 98 minimum school funding guarantee be, and how will the May Revision propose to use additional Proposition 98 funding? Options would include using the dollars to pay back money borrowed from K-12 schools, providing additional funding to implement the Local Control Funding Formula, and/or providing resources for other one-time or ongoing education priorities. How much of this higher-than-anticipated revenue is left over beyond the Proposition 98 minimum funding level? And how is that revenue allocated? Calls for paying down budgetary debt and/or building up the state’s reserves are likely to be among the options considered. But, with many Californians still hurting in the wake of the Great Recession, a balanced approach would prioritize providing additional resources for critical programs such as child care and state preschool, CalWORKs, and adult dental coverage.

4.    Pay-Down of California’s Budgetary Debt

The issue: The Governor’s proposed 2013-14 budget calls for paying down $4.2 billion in budgetary debt as part of a plan to reduce this debt from $27.8 billion in 2012-13 to $4.3 billion by 2016-17. “Budgetary debt” includes money borrowed from K-12 schools, unpaid costs to local governments, and loans from state special funds.

We’re watching for: any changes to the Governor’s proposed pay-down. If the May Revision does project higher revenue collections, increasing the pay-down in 2013-14 could be part of proposals for allocating these additional revenues. The Governor and the Legislature may also choose to adopt a more gradual repayment schedule in order to free up funds to support other budget priorities.

5.    Enterprise Zone Reform

The issue: The Governor’s proposed 2013-14 budget includes a set of regulatory changes to the state’s Enterprise Zone (EZ) Program, which provides a variety of tax credits intended to encourage businesses to locate in economically distressed geographic areas. While the intent of the program is to promote business development and job creation in targeted areas, research shows that the program fails to achieve its goals and places an increasing strain on the state budget — $720 million in 2010, projected to rise to $1 billion by 2015-16.

We’re watching for: any changes to proposals to restructure the EZ Program. Proposals that are currently under consideration include the Governor’s proposed regulatory reforms as well as a number of legislative proposals that seek to restructure the program. Given that lawmakers are very unlikely to eliminate the program, we think that it should be restructured to better target the jobs and business development intended, boost accountability and evaluation of program effectiveness, and reduce the strain on the state budget.

— Chris Hoene

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Lawmakers Rethinking Recent Cut to Medi-Cal Provider Payments

April 24, 2013

With California facing a substantial budget gap in 2011, state lawmakers and Governor Brown approved a 10 percent cut to payments for doctors, dentists, pharmacists, and a range of other providers who participate in Medi-Cal, California’s Medicaid program. This reduction has yet to take effect because health provider associations filed several lawsuits, and the issue remains tied up in federal court.

With the cut in legal limbo, lawmakers are now considering two bills that would prevent the reduction from taking effect: SB 640 by Senator Ricardo Lara (D-Long Beach) and AB 900 by Assemblymember Luis Alejo (D-Salinas). SB 640 will be taken up in the Senate Health Committee this afternoon; AB 900 is scheduled to be heard in the Assembly Health Committee next Tuesday, April 30.

These bills would help to strengthen Medi-Cal by addressing at least three major concerns:

  • First, Medi-Cal provider rates are already exceptionally low. California’s Medicaid payments to doctors for primary care and other services were the third-lowest in the US in 2012 when measured as a percentage of federal Medicare payments for similar services (see chart). Given these low reimbursement rates, it’s not surprising that just 57 percent of California physicians accepted new Medicaid patients in 2011, the second-lowest rate in the nation. Moreover, Medi-Cal enrollees report having greater difficulty accessing primary care providers and specialists compared to Californians with other types of health care coverage.

  • Second, the provider payment reduction — if ultimately upheld by the courts — would apply not only going forward, but also retroactively to June 1, 2011. In other words, Medi-Cal providers would have to give back a portion of the payments they’ve received over the past couple of years. Administration officials indicate that the state would retroactively “recoup” payments from providers by imposing an additional 5 percent cut, for a total reduction of 15 percent, until the full amount owed by providers is repaid.
  • Third, California is on the verge of a major expansion of the Medi-Cal Program as part of the state’s implementation of federal health care reform, as we describe in a report released earlier this month. More than 1 million low-income adults will be newly eligible for Medi-Cal beginning in 2014 under a program expansion that state policymakers have said they will adopt (although the expansion appears to be on the slow track). This means that Medi-Cal enrollment, which is already around 8 million, will increase significantly in 2014 and beyond, raising concerns about whether there will be enough providers willing to accept these newly covered Californians.

Perhaps the biggest challenge in reversing the provider payment reduction is the cost. Recent estimates suggest that the cut would reduce state spending on Medi-Cal by $573 million in 2013-14. But with a significant expansion of Medi-Cal on the horizon, cutting provider payments — and retroactively recouping payments already made — may not be the best way forward for California. Rolling back the 10 percent cut would be a sensible step that would create greater fiscal certainty for providers and would represent a critical state investment in the success of health care reform.

— Scott Graves

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Medi-Cal Expansion: Full Steam Ahead or on the Slow Track?

April 3, 2013

Medi-Cal – our state’s Medicaid Program – provides health coverage to well over 7 million low-income Californians, primarily children, youth, and women. The program soon will cover hundreds of thousands of additional residents as part of an expansion authorized by federal health care reform. Under the expansion, California will extend Medi-Cal coverage to parents and childless adults who are currently excluded from the program and whose incomes do not exceed 138 percent of the federal poverty line (see chart). But is California on track to expand Medi-Cal by January 1, 2014? That’s the date when the federal government will begin paying the full cost of the expansion for the first three years, phasing down to a still-high 90 percent of the cost by 2020. With less than nine months to go, and much work left to do, there is considerable concern that the state isn’t moving quickly enough to ensure a timely expansion of Medi-Cal.

We take an in-depth look at the Medi-Cal expansion – and the debate surrounding it – in a new CBP report released yesterday: Expanding Horizons: Key Facts About the Medi-Cal Program as California Implements Health Care Reform. In addition to providing a comprehensive overview of the program, our report highlights significant differences of opinion that have emerged regarding the Medi-Cal expansion. For instance, identical bills moving through the Assembly and Senate (AB X1 1 and SB X1 1) envision a state-led expansion, an approach endorsed by the nonpartisan Legislative Analyst’s Office (LAO). In contrast, Governor Brown has suggested that either the state or the counties could lead the expansion, a position the Governor has maintained since January despite major concerns that counties, health advocates, and the LAO have raised about the county-led option.

Another point of contention is the Governor’s decision to link the Medi-Cal expansion to his proposal to “capture,” for the state’s benefit, some of the state dollars that counties now use to provide health care to low-income, uninsured (“medically indigent”) Californians – many of whom would enroll in Medi-Cal under the expansion. The Governor’s proposal has generated concern among county officials and health advocates, who worry that the state may shift too much funding, too soon, from a county health care safety net that is sorely in need of new investments and will remain in high demand even after health care reform is fully implemented.

Our report concludes that policymakers should move quickly to put in place the changes needed to ensure a successful, state-led expansion of Medi-Cal by January 1, 2014. Starting the expansion after that date would leave federal dollars on the table and delay coverage for hundreds of thousands of low-income Californians. We also suggest that policymakers consider taking a “wait and see” approach as to the appropriate level of state funding for county indigent health care services. At the moment, it’s unclear how the Medi-Cal expansion will affect the use and the cost of the county health care safety net. This picture will come into focus over the next few years, at which point lawmakers – armed with better information – could revisit the Governor’s proposal to shift county indigent health care dollars to the state.

Finally, we note that California’s improving fiscal situation provides an opportunity for policymakers to reconsider reductions made to Medi-Cal in recent years, some of which are highlighted in our report. This includes the deep cut to provider payments that has been subject to legal challenges, but which could go into effect this year if upheld by the federal courts – on the eve of the Medi-Cal expansion.

– Scott Graves

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New CBP Report Looks at Medicaid in California and the Program’s Upcoming Expansion

April 2, 2013

One of the core components of federal health care reform is creating broader eligibility for Medicaid, a health care coverage program for low-income individuals that is jointly funded by the states and the federal government. Earlier today we released a new report that takes an in-depth look at Medi-Cal — the state’s Medicaid Program — as well as the central issues concerning its expansion in the coming years.

Expanding Horizons: Key Facts About the Medi-Cal Program as California Implements Health Care Reform looks at who is enrolled and the services they receive, explains how funding for Medi-Cal works, and discusses the major benefits of Medi-Cal expansion and the policy questions it raises. Read the report.

– Steven Bliss

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Expanding Medi-Cal: We’re Not Starting From Scratch

December 21, 2012

California isn’t starting from square one as the state moves toward expanding Medi-Cal coverage to most low-income adults under age 65, pending approval in 2013 by state lawmakers and Governor Brown. Under a 2010 agreement with the federal government, California established a temporary, county-based Low Income Health Program (LIHP) that is building a bridge to an expanded Medi-Cal Program in 2014. LIHP provides health coverage to uninsured adults ages 19 to 64 who meet citizenship or immigration requirements and are excluded from Medi-Cal under current eligibility rules. The income of participating adults cannot exceed 200 percent of the federal poverty line (a limit equal to $22,340 for an individual in 2012), although counties generally may — and in many cases have — set lower eligibility thresholds. County participation in LIHP is voluntary; counties that opt into the program have half of their LIHP costs paid by the federal government. As of September 2012, more than 500,000 low-income Californians across 50 counties were enrolled in LIHP.

LIHP provides vital health care services to low-income adults who otherwise would be uninsured. It’s also bringing substantial federal dollars — projected to reach nearly $3 billion — into California’s health care sector and the broader state economy. But even more, LIHP is helping to prepare California for the expansion of Medi-Cal as envisioned in the federal health care reform law. This is because nearly all of the adults enrolled in LIHP — along with many other low-income Californians — would be newly eligible for Medi-Cal under the expansion. In fact, state officials are already planning for the transition of eligible LIHP enrollees to Medi-Cal effective January 1, 2014. At that point, the federal government will pay 100 percent of the cost of coverage for this new group of Medi-Cal beneficiaries through 2016, with the state picking up a small share of the cost in subsequent years. So, for anyone wondering when the Medi-Cal expansion will begin in California, LIHP provides an answer: It’s already under way. It’s now up to state policymakers to maintain the current momentum and propel the expansion — a key component of federal health care reform — across the finish line.

— Scott Graves

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