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Summary of §1115 Waiver


The §1115 Waiver provides a bridge or stepping-stones to implementation of the Affordable Care Act of 201o (ACA). The projected value to the state is more than $10 billion in federal match over the next five years. This briefing paper describes the evolution from our current system to the new system outlined in the ACA, and the waiver’s crucial role in facilitating this transition. [i]

California’s current system for the uninsured is based on a mixture of county and state health programs,[ii] with significant federal subsidies for safety net hospitals[iii] and community clinics[iv] that serve large shares of the uninsured. Estimated county spending on care to the uninsured in California is over $2 billion per year.[v]  Typical care to the uninsured is episodic and highly reliant on inappropriate use of hospital emergency rooms as the ER is open to all regardless of insurance status or ability to pay.

The county system is funded by state realignment funds (a share of the state sales tax and vehicle license fees) to counties, federal DSH and Safety Net Care Pool (SNCP) funds, local matching funds and federal §330 funds.[vi] State programs for the uninsured are funded by the state General and Special Funds with some limited federal matches. There is significant cross subsidization between the state’s Medi-Cal program and county and provider-based care to the uninsured. Ten California counties received a share of $180 million annually in federal match between 2007 and 2010 for a portion of their improved care/coverage to uninsured adults; these were known as coverage initiatives.[vii]

The 2010 federal waiver makes several very important improvements:

  1. Funds coverage for medically indigent adults and other low-income adults under 200% of FPL in evolving county programs (Low Income Health Program) with a federal match at county option. An estimated $2.9 billion in federal match is available, of which up to $6oo million could come from the Safety Net Care Pool.
  2. Moves some seniors and persons with disabilities into managed care, with a projected General Fund savings of $180 million annually.
  3. Better coordinates the care of children in the California Children’s Services program
  4. Funds a variety of state programs for the uninsured and public providers’ uncompensated care with $7.5 billion in Safety Net Care Pool funds.
  5. Funds the evolution/transformation of public hospitals into models of coverage through the Delivery System Reform Incentive Pool (DSRIP).  Up to $6.5 billion from the SNCP is available for DSRIP.

The waiver has been in effect since November 1, 2010. Low Income Health Program (LIHP) coverage started June 1, 2011 although funding for the 10 coverage initiative counties was to be effective November 1, 2010. The details of the Delivery System Reform Incentive Pool (DSRIP) were negotiated between the state, CMS and the California Association of Public Hospitals, retroactive to November 1, 2010.[viii]

In 2014, the ACA will cover uninsured adults and children up to 133% of FPL ($14,000 for an individual) through Medi-Cal managed care, and it will subsidize private coverage for the uninsured, low-wage small employers and the private individually insured with incomes up to 400% of FPL ($88,000 for a family of four) through private (and public if any participate) health plans contracting with the Exchange.[ix] In 2014, the federal government will pay 100% of the costs of the new Medicaid eligibles, phasing down to 90% by 2020. The state’s potential benefit of these provisions is maximally estimated at $18 billion annually by 2018.[x] Beginning in 2014 6 million of California’s 7 million[xi] uninsured will have a choice of managed care plans, providers and benefits through Medi-Cal or the Exchange.

More than 4.5 million of California’s uninsured will be eligible for Medi-Cal expansion (3 million) or for subsidies in the Exchange (1.7 million).[xii] In April 2010, states that covered their Medically Indigent Adults (MIAs), like Arizona, Oregon, New York, Massachusetts, Maine, Vermont and Minnesota, became eligible for federal Medicaid matching funds.  This new waiver allows California counties, who choose to participate in the waiver funding for care to MIAs, to receive comparable match during the years 2011 through 2013, but they must upgrade their systems to meet the minimum standards set by the waiver.[xiii] In 2014 (Medicare) and 2017 (Medi-Cal), the federal government will begin to reduce federal DSH fund subsidies for hospitals’ uncompensated care, based on the assumption that most of the uninsured will enroll in coverage, reducing hospitals’ uncompensated care.[xiv]

Continue reading the full summary (pdf)

[i] This is an update on our earlier paper dated January 18, 2011, based on the most recent Terms and Conditions of the §1115 waiver

[ii] Welfare and Institutions Code §17000 requires counties to provide for care to the county’s indigent residents. We estimate that counties spend on average less than $300 per uninsured – a figure we derive by dividing total reported county spending on the uninsured by the California Health Interview Survey reports on the numbers of uninsured Californians.

In 1983, the state of California terminated eligibility for the medically indigent adults (MIAs) who were not eligible for a federal match, and returned this responsibility to the counties with 70% of what the state at that time paid for their care. That funding eroded over time and with gubernatorial vetoes, and was combined with state’s AB 8 county health funding into a financial package, referred to as realignment (a share of the state sales tax and vehicle license fees). There are three separate realignments to county government: health, mental health and social services, and counties can transfer funds among these accounts in a very limited fashion.

[iii] Hospitals receive federal Medicaid DSH funds to pay for their uncompensated care to the uninsured and Medi-Cal patients. In the 2005 waiver, DSH funds were split between public and private hospitals; publics paid the match for their share of DSH funds with a local match, and the state paid the match for the privates. Private hospitals received $475 million for virtual DSH and public hospitals received over $1 billion annually for DSH. DSH hospitals may also receive federal Safety Net Care Pool (SNCP) funding for their care to the uninsured. SNCP was also a construct of the 2005 waiver and replaced SB 1255 funds, which were used to pay for care to the uninsured in hospital trauma centers and emergency rooms. Private hospitals received $292 million through the private supplemental program, and public hospitals received $580 million annually through SNCP. Counties also have special funding arrangements with hospitals, such as the Los Angeles County arrangements with trauma centers and with private hospitals in the closed MLK Hospital’s catchment area.

[iv] Some community clinics receive federal §330 funds that help pay for their care to the uninsured; clinics reported receipt of over $350 million in federal grants and contracts in 2009. In the past most clinics also received state Early Access to Primary Care (EAPC) funding for care to the uninsured; this funding has been decimated by recent state budgets. Clinics are eligible to receive SNCP funding as well for their care to the uninsured. Los Angeles with its PPP (Public-Private Partnerships) is a good example of clinics collaborating with a county system while being funded by federal waiver funds.

[v] County spending has been reported by counties under the MICRS and CMSP data sets. When the state cut/eliminated Proposition 99 funds for county health, counties stopped sending MICRS reports; thus there is no good data for county health spending in large counties after 2007. Small (CMSP) counties continue to report, but the extent of this data has in our judgment deteriorated since CMSP subcontracted with Blue Cross.

[vi] All of these funding streams are reported in Yoo, 2006-2009 Overview of California’s Uninsured (ITUP, November 2010) at www.itup.org. They are reported for each individual county and for the hospitals and clinics in each county at http://itup.org/regional-workgroups.html

[vii] These initiatives and their progress are described in a series of ITUP reports. Espejo, Overview, Update and Summary of California’s §1115 Waiver Coverage Expansion Initiatives (November 2007) at http://itup.org/reports.html#waiver and Pizzitola, California’s Coverage Initiative, Year One Challenges and Successes and a Forecast for Year Two (ITUP, December 2008) at http://itup.org/public-private-workgroup.html  See also, UCLA Center for Health Policy Research, Interim Evaluation of Health care Coverage in California (August 13, 2009) at http://www.dhcs.ca.gov/provgovpart/Pages/WaiverRenewal.aspx  Ten counties received funds through this competitive grant process. Kern and Ventura sought to enhance primary care and working relationships with clinics as did Los Angeles. San Diego targeted high-risk patients with diabetes following the Project Dulce model. Orange overhauled its entire system and was able to increase outpatient care, reduce emergency and inpatient care and nearly double the numbers of uninsured indigent treated in the county system. San Francisco funded its Healthy San Francisco program, while Alameda targeted better and more responsive care to its “frequent fliers”, those with unusually high use of county health services.

[viii] See revised Terms and Conditions Attachments P and Q.

[ix] ITUP, Section by Section Guide to Health Reform (April 12, 2010) at http://itup.org/reports.html States also have an option to provide basic health plan coverage to the uninsured between 133 and 200% if FPL if they are willing to accept a 5% reduction in their federal Exchange allocation; some safety net providers favor this option. This might look like the Healthy Families program for children or a slimmed down Medicaid benefits package. ACA §1331

[x] See ITUP, Before and After Reform in California (March 2010) at http://itup.org/reports.html In this analysis, we compared 2006 county spending on the uninsured, the 2014 projections and the 2018 projections for implementation of ACA. We used the CBO analyses of ACA and the California Department of Health Care Services analyses of the impacts on ACA in California. The analyses are for each county and for statewide implementation. The statewide figures are that California counties reported spending $1.7 billion on the uninsured in 2006. The projected benefit to California of ACA in 2014 for the Medi-Cal expansion and the Exchange subsidies is $5 billion. By 2018 as we reach full enrollment and if health costs continue to rise at 6% annually, the projected benefit to California of ACA in 2018 reaches nearly $18 billion.

[xi] California’s uninsured numbers are climbing due to the recession-induced loss of employment-based coverage. Lavaredda, Brown et al, Number of Uninsured Jumped from 6.5 Million to More than 7 Million from 2007 to 2009 (UCLA Center on Health Policy Research, March 2010) at www.healthpolicy.ucla.edu/pubs/publist.aspx?subTopicID=26

[xii] Lavaredda, Brown et al, National Health Care Reform Will Help Four Million Uninsured Adults and Children in California (UCLA Center on Health Policy Research, March 2010) at www.healthpolicy.ucla.edu/pubs/publist.aspx?subTopicID=26

[xiii] Center for Medicare and Medicaid Services, California Department of Health Care Services Bridge to Reform Demonstration, 11-W-00193/9 (November 2, 2010) Sections 42-76.

[xiv] ITUP, Section by Section Guide to Health Reform (April 12, 2010), ACA Section 2551. The federal Medicaid DSH reductions start at a modest $500 million in 2014 and reach $5 billion annually in 2018.