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Visions for Reaching an Agreement on Expanding Medi-Cal

California is one of the nation’s leaders in implementing the Affordable Care Act for its 7 million uninsured residents. In December 2012, the Governor’s Let’s Get Healthy California Task Force issued its report delineating California’s goals and steps to improve the health of all Californians, to become the healthiest state in the nation and to reduce the rising costs of health coverage.[i] The Task Force’s goals include reducing the state’s uninsurance rate to 5%.[ii] And over the last several weeks, Covered California announced its outreach and enrollment grants, as well as its health plan contracts and rates.

The other component of expansion, however, has been moving at a slower pace. Legislative discussions to expand Medicaid to the state’s poorest citizens have been stuck in neutral as the Governor, the legislature and the state’s counties discuss the allocation of potential program savings. In California, the Medicaid expansion under the Affordable Care Act will present substantial savings opportunities for the state and for the counties and more importantly provide far better care for the patients.[iii] The Governor’s May revise made two important steps forward: 1) dropping the notion of 58 separate county programs for the newly eligible and 2) quantifying his proposal for the state to share in the counties’ savings.

The state savings will be in Medi-Cal[iv] and in some of the other state programs,[v] such as MRMIP, AIM and Breast Cancer, Screening and Treatment where individuals and parents with incomes over 133% of FPL (plus a 5% income disregard) will become Exchange eligible and individuals and parents with incomes under 133% of FPL become Medi-Cal eligible with 100% federal matching.[vi] The Governor has proposed other savings measures to move some individuals with incomes between 100% and 200% of FPL from Medi-Cal onto the Exchange to take advantage of the federal match.[vii]

Counties will see some savings in their care for the county indigent,[viii] mental health,[ix] and public health[x] programs. Most county savings will occur as their patients and subscribers move from the county indigent program onto Medi-Cal beginning in January 2014. The extent of county savings will be highly variable and quite different from county to county depending on the demographics of the County’s uninsured, the demographics of participation in the county indigent programs now and in the future, and the design of and the degree of county financial investment in the county indigent program.[xi]

The state and counties are arguing about who keeps what share of these budget savings.[xii] While this is an ever-important concern, especially given the lean local and state budgets, it seems to me this misses the point of where the program savings should be re-invested when they do occur, how county programs should evolve, what aspects of Medi-Cal need modernizing and how programs should be designed to make the Affordable Care Act successful for Californians. The areas of greatest health care program need in no particular order are: program simplification, behavioral health, primary care physician reimbursement and the remaining uninsured.[xiii]

It seems to me the Governor, the state legislature and California counties need to agree on their vision for implementation of health reform and develop a process to allocate state and local program savings accordingly. The top priority could and should be enrollment of all program eligibles: not 50%, not 75%, not 85%, but at least 96%, the same as Medicare.[xiv] The best ways to increase enrollment are program simplification and outreach. Covered California will be moving rapidly in that direction.[xv] Medi-Cal needs to be modernized as it implements the ACA, but California is not yet doing so.[xvi] California will need to adopt Medi-Cal expansion,[xvii] outreach and education,[xviii] and program simplification.[xix]

There needs to be significant value in the program in which individuals enroll; that means strong primary care and comprehensive and effective behavioral health. Behavioral health coverage under Medi-Cal needs to be upgraded and integrated.[xx] Currently, mental health and substance abuse treatments are carved out and isolated from each other and from physical health; they are financed at the county level with a combination of realignment, Mental Health Services Act and county matching funds. The substance abuse treatments are woefully inadequate and outdated and reach only a tiny percent of the population in need.[xxi] While the scope of covered mental health benefits in county mental health plans are sufficient, they fail to reach half of the severely mentally ill.[xxii]  Only a relative handful of those individuals with moderate degrees of mental illness receive any treatment.[xxiii] Good behavioral health care coverage will reduce the use and overall cost of the health system.[xxiv]

Strong, accessible primary care is the other key to an effective and efficient delivery system for the newly insured. Those LIHP counties who have put in place strong and well-integrated programs grounded in primary care have already experienced reductions in the use of hospital and emergency services.[xxv] California has Medi-Cal managed care in place for families and individuals, but has not yet implemented the ACA reimbursement increase for Medi-Cal primary care services to Medicare levels even though there is 100% federal financial participation for this increase for two years ending in 2014.[xxvi] California’s policy makers have not yet developed a plan to finance continuation of this increase after 2014. The legislature and Governor could agree to retain the primary care rate increase and restore the 10% cut in physician payments. The ACA also affords California a 90/10 match for the range of supplementary services entailed in the Patient Centered Medical Homes, which are proving very effective in improving health outcomes and reducing health spending in the LIHP programs and pilots across the country. California has not yet embraced this matching opportunity.[xxvii]

The numbers of remaining uninsured Californians could be anywhere from 1 to 4 million,[xxviii] depending on how effectively we implement the ACA in California. The Governor proposes to gradually reduce state realignment funding to the counties, and to take the full county savings from ACA implementation for the state.[xxix] The counties want to share in the savings from ACA implementation and may wish to cap any amount they would have to return to the state reflecting the amounts they actually receive from the state for the new care being covered. Health Access has suggested that those counties that agree to LHIP programs for their remaining uninsured should be allowed to retain their realignment funding.[xxx]

We expect the demand for county indigent funds to decline quite sharply when and if California does an excellent job of implementing the ACA’s Medicaid and Covered California expansions.[xxxi] There is no good reason to leave these savings with the counties unless the counties commit to sustaining a managed care-like model of caring for the remaining uninsured and upgrading, coordinating and integrating their behavioral health and public health programs with local managed care plans; this is most likely to occur in the large provider counties with a significant county investment in public facilities.[xxxii] On the other hand, there is no compelling case to be made for returning the county indigent funds to the state, unless the state agrees to upgrade and sustain Medi-Cal primary care.[xxxiii] While the debates about the respective share of savings between the state and the counties are extremely important, far more important is thoughtfully mapping out the respective roles of the state and the different payer and provider counties’ in effective implementation of the ACA coverage opportunities for all Californians.



[i] Let’s Get Healthy California Task Force Report (December 19, 2012) at http://www.chhs.ca.gov/Documents/Let%27s%20Get%20Healthy%20California%20Task%20Force%20Final%20Report.pdf

[ii] Ibid. The results of the Oregon Health Plan study showed the value of Medicaid in Increasing usual source of care, improving health access, improving self reported health, reducing out of pocket, increasing control of diabetes and reducing depression. See Finkelstein et al. The Oregon Health Insurance Experiments: Evidence from the First Year, The Quarterly Journal of Economics (2012) 10.1093/qje/qjs020 and Baicker et al. The Oregon Experiments – Effects of Medicaid on Clinical Outcomes New England 2013; 368:1713-1722 (May 2, 2013) at www.Oregonhealthstudy.org/results

[iii] See Buettgens, Dorn and Carroll, Timely Analysis of Immediate Health Policy Issues: Consider Savings as Well as Costs (Urban Institute, July 2011) at www.urban.org.  The savings occur in county health, county mental health, moving Medicaid coverage for individuals over 138% of FPL into the Exchange and the higher federal match for Medicaid coverage of adults with incomes of less than 133% of FPL. The increase in Medicaid costs occurs due to increased participation of the eligible but not enrolled and the small state match for new eligibles beginning in 2017. Not discussed in the paper are the added state savings from the higher match for CHIP children beginning in 2015.

[iv] See Wulsin and Yoo, Medi-Cal Transformation (Insure the Uninsured Project, March 2012) at www.itup.org . Over a million individuals with Medi-Cal coverage report incomes in excess of 133% of FPL, potentially making them eligible for the Exchange.

[v] Ibid.

[vi] Ibid.

[vii] Yoo, Administration Proposes State-Based Medi-Cal Expansion in May Revise (ITUP, May 14, 2013) at itup.org/blog/2013/05/13 For example, California covers pregnant women through Medi-Cal and AIM up to 300% of FPL. The Governor has proposed to shift them into Covered California and pay for the increase in cost sharing and any differences in covered benefits through Medi-Cal premium assistance. This appears to be a sound idea, as women would otherwise shift back and forth between Medi-Cal and Covered California before, during and after their pregnancies. How this will work practically is a big question for program administrators? Does the pregnant woman notify Covered California when the pregnancy is confirmed and then are premiums reduced during the pregnancy and for 60 days post partum.

California covers new legal immigrants with 100% state General Funds for the services beyond limited scope. The Governor would shift new legal immigrants into the Exchange where 100% FFP is available and pay their share of premiums through premium assistance. This is sound fiscal policy, but adds administrative complexity. For example the children would be on Medi-Cal up to 250% of FPL, the spouse with over 5 years of legal permanent residency would qualify for Medi-Cal up to 133% of FPL and Covered California above that threshold while the new legal immigrant spouse would qualify for full scope Medi-Cal up to 100% of FPL and for Covered California above that threshold.

[viii] County reporting on their spending for indigent health care ended in 2006 at the behest of the counties. The most recent 2006 data was that counties spent $1.8 billion from a total of $3 billion in revenues (realignment, county match, DSH and tobacco settlement). See Fox, Overview of the Uninsured: California (ITUP, December 2007) at www.itup.org/reports. If county spending is divided by the numbers of uninsured Californians, this means that counties were spending roughly $300 per uninsured Californian or less than 10% of the cost of extending Medi-Cal coverage to all the uninsured and 6% of the cost of extending private insurance to all the uninsured.

[ix] There is no good statewide data on county mental health spending on the uninsured either in the aggregate or by county. The recent studies indicate that fully half of Medi-Cal insured individuals with severe and chronic mental illness are getting no care at all. There is enormous unmet need for mental health that varies widely among the counties and there is wide variation in funding and care for mental health among the counties. See Wulsin, Behavioral Health in California (ITUP, July/August 2012) at http://itup.org/public-coverage/2012/07/23/mental-health-in-california/ and http://itup.org/legislation-policy/2012/08/30/mental-health-and-substance-abuse-in-cas-public-health-programs/

[x] Public health spending is for all county residents. There is no good data on the extent of county public health spending on care to the uninsured that could be covered under the ACA, clearly some immunizations, wellness and prevention visits, care to the HIV/AIDS populations, diagnosis and treatments of sexually transmitted diseases, Substance Abuse Disorder treatments will be reimbursable, but there is no current statewide or county specific breakdown of such spending. In 2001-2, California counties’ net public health spending was $577 million or $15 per California resident – an infinitesimally small amount given the quality of life challenges that public health seeks to address on behalf of all Californians. Net refers to the amount of realignment and county matching funds that counties would have used to support public health.

[xi] For example Central Coast counties reported spending 28% of their available health revenues on indigent health care and Bay Area counties nearly 80%; Central Valley counties reported spending 43% and North Central counties over 80%. Counties had very different financial bases of support. For example, Central Coast counties received $165 per uninsured county resident in realignment funds while Bay Area counties received $361 per uninsured, county resident. See Fox, Overview of the Uninsured: California.

Counties spent a bit less than $300 per uninsured Californian, about 10% of the equivalent cost of extending Medi-Cal coverage to all the uninsured; counties lived within these Spartan budgets by different strategies; some used quite narrow definitions of eligibility while others rationed by queuing.

[xii] In the May 2013 revise, the Governor has proposed $300 million in 2013-14, growing to $1.3 billion in 2015-16, and the parties are in negotiations. The proposed $1.3 billion figure would comprise 87% of current health realignment funds

[xiii] Medi-Cal has extremely complex eligibility and enrollment with over 150 aid codes, 58 separate county administrative bureaucracies and extensive and repetitive verification requirements. Its behavioral health coverage for substance abuse disorder treatment and for mental illness not meeting the severe and chronic threshold is quite limited and disconnected. Medi-Cal has the second lowest physician reimbursement in the country and serious difficulties accessing private specialty care and primary care practitioners. California will have between 1 and 4 million residually uninsured depending on how effectively we implement the Medi-Cal and Exchange expansions. See Wulsin and Yoo, Medi-Cal Transformation.

[xiv] Studies suggest that Medi-Cal has about 60% enrollment while top states like Massachusetts have 85% enrollment in Medicaid and the nation has about 96% enrollment in Medicare. See Wulsin, Medi-Cal Transformation. While enrollment may be slow at first, the state should be able to auto-enroll 100% of county LIHP participants in Medi-Cal and the Exchange. Unlike the Exchange, Medi-Cal has no premiums, offers three months retroactive coverage and enrollment is not restricted to open enrollment periods. Given these features, it is likely that nearly all those with a need for medical treatment will enroll, thus nearly 100% of the expected costs of care will be absorbed in the expansion. However to get the savings associated with prevention and primary care, the state needs to strive for near universal enrollment of the eligible population. Enrolling individuals at the time of an urgent need for care benefits the providers, but does not produce system-wide savings or improve health outcomes in the ways that early and continuous enrollment does.

[xv] Covered California has issued its initial outreach and enrollment grants, which provide an excellent starting point although certain regions such as Orange County may have been overlooked. Health plan contracts and premiums have been agreed upon. CalHEERS should be online in the next month, and training for navigators should begin quite soon.

[xvi] The expansion bills, SB X1 1 (Hernandez) and AB X1 1 (Perez) are stalled due to ongoing negotiations, still not yet completed, between the state and the counties. The proposed legislation makes a promising start at simplification, but fails to take full advantage of the options that the federal law affords to consolidate and simplify the Medicaid program. In other respects, it may over-reach that which is permitted under the ACA. See Wulsin, Summary and Commentary on SB X1 1 (Hernandez) and AB X1 1 (Perez) (ITUP, March, 2013) at http://itup.org/legislation-policy/2013/03/14/summary-and-commentary-abx1-1-john-a-perez/ and Wulsin, Summary of Federal Medicaid Eligibility Rule Changes (ITUP, April, 2012) at http://itup.org/legislation-policy/2012/04/12/summary-of-federal-medicaid-eligibility-rule-changes/ and Wulsin, Summary of Federal Rules on Federal Medical Assistance Percentage to the States (ITUP, April, 2012) at http://itup.org/legislation-policy/2013/04/08/summary-of-federal-rules-on-federal-medical-assistance-percentage-to-the-states/

[xvii] Ibid.

[xviii] The California Endowment has offered to provide the state match for Medicaid outreach, education and application assistance; the state has yet to accept this offer.

[xix] See n.14. The most important features are to set a clear bright Medicaid eligibility line at 133% of FPL with the Exchange responsible for all those with incomes over 133% of FPL, to consolidate aid codes and income disregards and to shift from paper based verifications to computer data matching in real time.

[xxi] Ibid. Covered treatments for substance abuse disorders are limited to methadone despite the availability of more modern and more effective treatments. Only about 6% of those needing treatment are receiving it. The Governor has taken an important but quite limited step forward by proposing to allow counties to improve their substance abuse treatment programs at their option; it is unclear whether the federal government will approve 58 separate benefits packages for substance abuse treatments. He has yet to set standards of effectiveness, assure program accountability, give counties the latitude to contract with the most effective providers and assure that Medi-Cal patients with substance abuse disorders have access to adequate and effective treatments. In many ways, this highlights the dysfunctional relationships between the state and the counties that need urgent repairs. The state and the counties are unable to agree on transparency, accountability and a steady system of improvements across the state. Individual counties may excel, but there is no system to learn and apply these successes statewide. Others may fail, and there is no transparency, no accountability, no comparable data and no standards to measure success or failure.

[xxii] Wulsin, Behavioral Health in California

[xxiii] Only about 2% of those patients with mild and moderate levels of mental illness get care under Medi-Cal. Ibid.

[xxiv] For example the CMSP pilot behavioral health programs and the Kaiser studies reported substantial reductions in use of medical care. Ibid. See Connolly, Redefining the Relationship between California’s State and County Governments (ITUP, April 2013) for examples of savings from enhanced substance use disorder benefits in Colorado and Washington. Available at: http://itup.org/wp-content/uploads/downloads/2013/04/StateCo_Overview_040313.pdf Medicaid’s administratively necessary days can be significantly reduced through mental health residential services.

[xxv] For example, Kern, Ventura, Orange, San Francisco and San Diego all reported substantial success in substituting primary care for hospital-based care in their LIHP programs. See Wulsin, Driscoll and Cohen, California’s Implementation of the Section 1115 Waiver (ITUP, January 2012) at http://itup.org/legislation-policy/2012/01/23/californias-%C2%A71115-waiver-implementation/ Medicaid’s growing and higher than necessary out of network use of emergency rooms can be significantly reduced. See Yoo and Wulsin, ITUP Analysis of OSHPD Data About Safety net Hospital and Clinic Utilization and Revenue (ITUP, April 2013) at http://itup.org/delivery-systems/2013/04/12/itup-analysis-of-oshpd-data-about-safety-net-hospital-and-clinic-utilization-and-revenue/

[xxvi] Wulsin, Primary Care Rate Increases: Summary of the New Federal Regulations (ITUP, November 2012) at http://itup.org/blog/2012/11/25/primary-care-reimbursement-rates-summary-of-new-federal-regulations/

[xxvii] See Cohen, The Patient Centered Medical Home Explained (ITUP, November 2010) at http://itup.org/blog/2010/11/17/the-patient-centered-medical-home-explained/ The California Endowment has offered to pay the 10% match; the State of California has not yet decided whether to accept this offer. There are many possible effective applications of this funding opportunity. For example, the AB 109 population could benefit greatly from greater service coordination during the community reentry process. See Connolly, Redefining the Relationship between California’s State and County Governments (ITUP, April 2013). Available at: http://itup.org/wp-content/uploads/downloads/2013/04/StateCo_Overview_040313.pdf

[xxviii] See Yoo, The Affordable Care Act and the Residually Uninsured (ITUP, July 2012) and Gupta, Models of Care for the Residually Uninsured (ITUP, July 2012) at http://itup.org/delivery-systems/2012/07/02/providing-health-care-to-the-residually-uninsured-in-a-post-reform-world/

[xxix] Yoo, The Administration Proposes State Based Medi-Cal Expansion in May Revise (ITUP, May 2013) at http://itup.org/blog/2013/05/14/administration-proposes-state-based-medi-cal-expansion-in-may-revise/

[xxx] Health Access, Continuing California’s Commitments to the Remaining Uninsured (Health Access, May 2013) at http://www.health-access.org/files/expanding/Remaining%20Uninsured%20Concept%20Paper%205-8-13.pdf

[xxxi] There are over 575,000 individuals enrolled in county LIHP programs, all of whom should be Medi-Cal or Exchange eligible on January 1, 2014. http://www.dhcs.ca.gov/provgovpart/Documents/LIHP/March%202013%20LIHP%20Enrollment.pdf. This is between 1/3rd and ½ of the individuals enrolled and being served in county indigent programs. Even if the state eventually does a terrific job of enrollment, at least 20% of California’s uninsured will not be eligible for the ACA coverage expansions due to immigration status.

[xxxii] See the models proposed in notes 27 and 28. ITUP has suggested that public health funding be separated from indigent health funding and distributed among the counties on a per capita basis. This approach would ensure an equitable allocation of public health funding for all Californians. See Connolly, Redefining the Relationship between California’s State and County Governments (ITUP, April 2013). Available at: http://itup.org/wp-content/uploads/downloads/2013/04/StateCo_Overview_040313.pdf

[xxxiii] See notes 20-27.

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