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The Puzzling Mystery of Shifting 0.9M Healthy Families Children into Medi-Cal

The Governor and the California legislature agreed to shift about 900,000 moderate-income children from Healthy Families to Medi-Cal. The shift is part of the legislature’s efforts to balance the state’s nearly $16 billion budget shortfall.[1] However, this particular effort will cost the state far more than it saves, disrupt children and families’ coverage and access to services, and undermine the state’s ACA implementation efforts. The state should reconsider this decision in August before it takes effect in October and disrupts access to medical services for close to one million California children.

First, the costs and savings: Healthy Families pays plans and providers more than does Medi-Cal. The state will have first year savings of $13 million and subsequent savings of $75 million by shifting children from Healthy Families into Medi-Cal. [2]  On the other hand, the state would forego the revenues from managed care plans of $183 million annually that are generated by the managed care fee/tax. So when that fee/tax expires, the state budget could be in worse shape by up to $170 million in this year and over $100 million in the out years. You might ask, “what is the linkage between these two?” Health plans and Republicans may be willing to extend the fee/tax in order to preserve Healthy Families, which is closer to their preferred commercial models, but not to eliminate the program and shift the children into Medi-Cal.[3]

Second, the impacts on children and families: Healthy Families has better provider reimbursement, a broader provider network and greater choice of plans and doctors than does Medi-Cal.[4] Healthy Families, however, has higher co-pays and families pay a higher share of premiums than under Medi-Cal. The trade-offs are greater choice and better access but slightly higher out-of-pocket costs.

Third, the impacts on ACA implementation: the ACA will create an eligibility threshold of 133% of FPL (roughly $30,000 for a family of four): those with incomes above that level are in the Exchange, below in Medi-Cal. Because the Exchange is linked to the private commercial insurance market, it will offer a broad choice of private plans and doctors, as well as public plans and safety net providers. In the Medi-Cal program, plan and provider choice is significantly more limited and fewer private providers and plans participate because the program has reimbursement rates well below Medicare levels, and significantly below private commercial insurance levels.[5] Under the ACA, about 2 million adults will be added to Medi-Cal in 2014; topping that off with another 900,000 children could well overburden Medi-Cal provider networks, which already have difficulty assuring access to the necessary services.[6]

In addition, unless the legislature and Governor reverse course, we will end up with parents with family incomes between 133% and 250% of FPL in the Exchange and their children in Medi-Cal. Needless confusion will result, and children will have less choice and poorer access to providers than their parents but lower out of pocket payments associated with their care.

Healthy Families is currently a mid-way point between Medi-Cal and private commercial insurance; it is quite popular with plans, patients and providers and is the model that is being discussed for the Basic Health Plan (BHP). In our view, Healthy Families will ultimately need to merge into either the Exchange or Medi-Cal as the ACA is implemented. Its future evolution may well be best linked to California’s decisions about the BHP option, where the parents of these children could be covered. It seems premature to assign the Healthy Families program to Medi-Cal without making any of the long-needed reimbursement and other improvements to the program, or making the fundamental decision about whether or not to implement the BHP and where a BHP should be housed and governed.

There is some speculation that Healthy Families’ demise is the precursor to enacting a Medi-Cal like Basic Health Plan, housed in the Department of Health Care Services.[7]  This could present a variety of challenges, including undermining the Exchange’s viability, reducing access to private sector care for the newly insured and adding to the already large challenges facing the Medi-Cal program.[8]

What could be done?  In August, the legislature could extend the managed care plan fee and restore Healthy Families eligibility for children with incomes in excess of 133% of FPL; this is consistent with the ACA and widely supported by stakeholders. In August the legislature could renew its consideration of the Basic Health Plan Option; it could choose to operate the BHP through DHCS, or through the Exchange. In January, the Administration could propose major improvements in Medi-Cal reimbursements and program design to effectively implement the ACA.[9]


[1] See California Legislative Analyst’s Office. 2012-13 Budget, Overview of the May Revision (May, 2012) at www.lao.ca.gov

[2] California Healthline, Health Advocates Say Healthy Families Shift Could Increase Costs (June 25, 2012) at http://www.californiahealthline.org/articles/2012/6/25/health-advocates-say-healthy-families-shift-could-increase-costs.aspx

[3] Ibid.

[4] In January 2013, Medi-Cal primary care reimbursement rates will increase to Medicare levels. State DHCS officials believe that the Medi-Cal and Healthy Families networks are nearly the same, so that few disruptions in continuity of care should occur. Half of primary care doctors have nevertheless indicated they would not accept new Medi-Cal patients. Access is likely to be most disrupted in rural and inland counties with existing physician shortages. See http://www.californiahealthline.org/articles/2012/7/16/counties-worried-about-doctor-count-ahead-of-medi-cal-growth.aspx

[5] Ibid.

[6] Ibid.

[7] See SB 703 (Hernandez). For our thoughts on the BHP option, see Wulsin, ITUP’s Thoughts on the Basic Health Plan Option (ITUP, May 2, 2012) http://itup.org/insurance-exchange/2012/05/02/itups-thoughts-on-the-basic-health-plan-option/

[8] See ITUP’s Thoughts on the Basic Health Plan Option

[9] See our suggestions in Wulsin and Yoo, Medi-Cal Transformation (ITUP, March 2012) at http://itup.org/public-coverage/2012/03/16/medi-cal-transformation-2/

This report is available for download:
The Puzzling Mystery of Shifting 0.9M Healthy Families Children Into Medi-Cal The Puzzling Mystery of Shifting 0.9M Healthy Families Children Into Medi-Cal.pdf

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