Fiscal Impact

Top 10 Fiscal Reasons Not to Cut Medi-Cal Funding

The Governor’s budget proposal includes taking more than $2 billion out of the already underfunded Medi-Cal program. Specifically, the budget proposes slashing funding for the Medi-Cal program by about $100 million ($48 million in state funds) in 2007-08 and $2.2 billion ($1.1 billion in state funds) in 2008-09. The proposed reductions include a $67 million ($33 million state funds) reduction in payment for Medi-Cal services in the current fiscal year and a $1.2 billion ($600 million in state funds) reduction in 2008-09. The budget also proposes savings by cutting certain optional benefits in Medi-Cal. While the impact of the proposed $2 billion Medi-Cal budget reductions on targeted providers is clear, there is also some collateral fiscal damage that might not be so clear.

1) Giving Up Federal Funding. California will lose a dollar of federal matching funds for every general fund dollar “saved” by the proposed Medi-Cal cuts – over $1.2 billion in federal funds will be forfeited. Some Medi-Cal services garner even more federal money. For each dollar the state spends on family planning services, California receives $9 federal match.

2) Creating Cost Shifts to Other Programs and Services. Reducing the level of support available from community based caregivers for the elderly, disabled and other vulnerable populations will force additional people into higher cost settings and result in higher costs in other state funded programs.

As an example, if rates are slashed, home health agencies may be forced to close their doors, forcing people into higher cost acute care facilities. A Medi-Cal beneficiary, who receives a home health visit every day costs about $2,300 a month. In an acute care setting a single day of service would cost more than an entire month in a home health environment. Similarly, nursing home care costs four times as much as the community alternative of adult day health care.

3) Worsening the “Hidden Tax” on Employers and Others. To the extent that costs formerly covered by Medi-Cal must be absorbed by other payers, those costs will be passed on to consumers and exacerbate the much discussed “hidden tax” for healthcare. According to the Governor’s estimates, every privately insured Californian pays a “hidden tax” of $455 per individuals and $1,186 per family every year to offset the uninsured and the effects of Medi-Cal under-funding.

4) Decreasing Use of Preventive Services. Instead of encouraging the use of lower cost preventive services, the proposed cuts will create barriers to these cost-effective services. For example, women who do not receive adequate prenatal care are three times more likely to have a pre-term birth, each pre-term birth costs the state $50,000 on average in medical and social services costs. Two-thirds of these costs occur in the same fiscal year as the birth. There are about 238,000 births to mothers enrolled in Medi-Cal every year. If pre-term births were to increase by just 1% as the result of women not being able to get prenatal care, the additional state costs would be almost $80 million in the year that rates were cut.

5) Increasing Use of Emergency Care. Decreasing provider rates will put pressure on California’s overburdened emergency system as Medi-Cal beneficiaries who can’t get access to primary and preventative care seek these services in the Emergency Department. Medi-Cal enrollees are already over represented in Emergency Rooms (ER) because they can’t find a doctor. Medi-Cal enrollees are about 15% of California’s population, but about 27% of ER patients. A recently released study in the journal Health Affairs showed that wait times in emergency rooms increased by 36% in just 7 years. The study suggests that this is due largely to compromised access to primary care services and suggests that access to these services needs to be expanded to reverse the longer wait time trend.

Further, a recent study found that patients who waited in the ER for more than six hours before being admitted to a hospital had longer hospital stays. The increased costs associated with longer wait times in the emergency department will offset any perceived cost savings from the 10% cut.

6) Undermining County Services. The loss of revenue for county operated clinics, programs and other services will have a significant impact on the overall financial health of some counties at a time when they are also struggling to cope with smaller budgets.

The budget has assumed for several years that fully funding Medi-Cal eligibility operations, coupled with statutory performance standards, results in savings due to timely redeterminations. The projected level of savings currently stands at about $450 million annually ($250 million General Fund). The proposed cuts – not just eliminating the annual cost of doing business increase, but also eliminating funding for caseload growth and cutting the base – are so deep that counties will no longer be able to meet these performance standards. As a result, annual redeterminations will be delayed and ineligible individuals will remain on the rolls, increasing benefits costs and resulting in the elimination of these assumed savings. In addition, Medi-Cal enrollees who cannot access care will seek services are likely to seek services in county funded facilities, which generally do not receive federal matching funds.

7) Hurting State and Local Economies. In areas where a hospital, clinic or health plan is a major part of the local economy, resulting reductions in staffing, wages, vendor contracts, etc. will be felt by the entire community. In rural areas especially hospitals, clinics and other providers are often major employers in a community. Reductions in services or closure of a facility will be deeply felt in these areas.

According to a 2004 report by Families USA, every dollar Medi-Cal spends generates $2.29 in business activity and related jobs for California. At this rate, the proposed $2 billion cut would trigger a $4.58 billion reduction in the overall state economy.

8) Increasing Administrative Costs. The requirements for federal approval, provider notification, and payment system changes will result in substantial implementation costs for the Administration.

9) Creating Huge Financing Costs. Exorbitant short term interest rates paid by providers forced to borrow money for payroll and other operational costs due to a Medi-Cal rate cut or payment delay will increase the base for some future provider rate setting. For others, these interest costs cannot be recouped and scarce public dollars will be used for interest payments instead of care.

10) Creating a Combined Impact. The same people affected by the Medi-Cal cut are also targeted for reductions in other budget areas such as foster care, mental health and other social services – the combined impact of multiple cuts may well undermine their very survival.

It just doesn’t add up. The Medi-Cal proposal to lower rates and restrict services will ripple out to patients, providers, local government, the state economy and individual taxpayers. Ultimately, this proposal generates no savings at all, puts lives of our most vulnerable populations at risk, and will cost California taxpayers far more than the projected savings.

The Alliance for Patient Care is a coalition of patient and provider organizations dedicated to protecting and improving access to health care for seniors, children, people with disabilities and families in the Medi-Cal program.

www.allianceforpatientcare.org 1201 J Street, Suite 200 Sacramento, CA 95814 info@allianceforpatientcare.org 916-551-2870