State and federal spending on health care in California has nearly doubled in the past seven years. Yet state lawmakers are meeting this week to consider raising taxes to spend even more. What’s going on?
The answer lies largely in the rapid expansion of the Medi-Cal program, which will soon provide health care to nearly 1 in 3 Californians. At the same time, the federal government has disallowed a creative financing scheme the state was using to maximize federal money for the program.
Combined, these two events will leave the state more than $1 billion short of what it needs to fund Medi-Cal next year, according to Gov. Jerry Brown.
Spending on health care has grown from about $47 billion in 2008 – at the onset of the Great Recession – to an anticipated $92 billion in the budget year that begins July 1, an increase of 94 percent.
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Remarkably, only $3.7 billion of that growth has come from the state’s general fund. Ten times that much has come from the federal government, most as the result of the Affordable Care Act, known widely as Obamacare.
Before Congress passed the law, Medi-Cal was open only to families whose incomes were at or below the federal poverty level. Federal health reform opened the program to people without children and raised the income threshold to 138 percent of the poverty level, or about $16,000 a year for an individual and $33,000 for a family of four.
All the attention also prompted many Californians who were already eligible for the program to sign up for coverage. Enrollment climbed from about 8 million to more than 12 million.
The feds have been paying the full cost of those who enrolled under the ACA, and are committed to paying at least 90 percent of those costs indefinitely.
But that does not mean that the expansion has been cost-free for California. The state still has to pay its share of the cost for those who were already eligible but enrolled as part of the surge of new sign-ups.
And in another wrinkle, the feds recently decided to no longer allow the convoluted, but rather ingenious, strategy California was using to maximize its federal funding for Medi-Cal.
In 2005, California levied a narrowly drafted tax on managed care health plans that served low-income people on Medi-Cal. Then the state put those tax revenues into the Medi-Cal budget, where they were matched by the federal government. Some of the federal matching funds were used to reimburse the health plans for the tax they paid. So the whole transaction was a wash for the health plans – and there was still enough new federal money left over to reduce the amount the state needed to spend on Medi-Cal.
But now the federal government says it will match only those tax dollars that come from a broad-based tax that is not reimbursed to everyone who pays it. Brown and the Legislature are still grappling over exactly how to structure such a tax, though it is likely it will still focus on health care providers.
The Legislature will probably also use the opportunity to fund some other priorities. Lawmakers want to reverse a 10 percent cut in Medi-Cal rates paid to doctors and hospitals that was adopted during the recession and which many members from both parties believe has made it harder for low-income people to get care. Lawmakers also want to restore cuts to programs serving people with developmental disabilities.
As a financial matter, the Affordable Care Act has been a great deal for California, expanding access to health care at a cost to state taxpayers of pennies on the dollar.
But those pennies add up, and California still has to find about $1 billion worth of them to put the Medi-Cal program on sound financial footing.
Daniel Weintraub is editor of the California Health Report.