FEBRUARY 2019 Medi-Cal Explained FACT SHEET The Medi-Cal Budget Figure 1. Medi-Cal Budget FY 2018-19 Process Other FY 2018–19 $99.2 Billion Authors: Margaret Tatar, Managing Principal, Health $15.4 Management Associates; and Athena Chapman, 16% President, Chapman Consulting General Fund Introduction $20.9 21% Medi-Cal is jointly funded by the state and federal Federal Funds governments as an entitlement program, meaning $62.9 63% that there is no cap on federal or state spending and the amount of funding is based on expenditures needed to cover care for eligible beneficiaries. The total budget for the Medi-Cal program in FY 2018-19 is over $99 billion (Figure 1).1 State General Source: Governor’s Budget Summary 2019 – 20: Health and Fund spending for Medi-Cal ($20.9 billion) rep- Human Services, California Dept. of Finance, www.ebudget. resents 15% of the General Fund budget, second ca.gov. only to K–12 education. The Budget Process The federal government provides federal matching The Department of Health Care Services (DHCS) funds for Medicaid based on a Federal Medical develops detailed estimates of the overall costs Assistance Percentage (FMAP), which varies by state of the Medi-Cal program twice a year —once in and by population. For every dollar that the state November to inform the development of the gov- expends on allowable Medicaid costs, the federal ernor’s initial budget proposal for the upcoming government matches those funds at the applicable FMAP. The state share of Medi-Cal funding is drawn from The California Health Care Foundation is ded- multiple sources, including the state General Fund icated to advancing meaningful, measurable (GF), local matching funds, provider fees, and health improvements in the way the health care delivery system provides care to the plan taxes. These other funding sources allow people of California, particularly California to draw down additional federal matching those with low incomes and funds for Medi-Cal while reducing the impact on the those whose needs are not well GF. Over a third of the state financing for Medi-Cal served by the status quo. We comes from these other sources. Counties and the work to ensure that people have public hospital systems are the main sources of access to the care they need, local matching funds and have a significant impact when they need it, at a price they can afford. on Medi-Cal financing and the ability of the state to For more information, visit www.chcf.org. support the program. California Health Care Foundation www.chcf.org | 1 FEBRUARY 2019 fiscal year (released in January), and again in May process. A conference committee sends a single to reflect changes to the budget outlined in the version of the budget bill back to each house for a May Revision to the governor’s budget proposal. vote before its goes to the governor for signature. The Medi-Cal estimate forecasts the current and Since proposed budget changes often require budget year expenditures for the Medi-Cal pro- changes to state statute if implemented, sepa- gram. Those expenditures fall into three categories: rate budget trailer bills are typically introduced by February 1 and heard by the legislature as part of l Benefits, or expenditures for the care of Medi-Cal beneficiaries; the budget process. l County administration, or expenditures for the The Legislative Analyst’s Office (LAO) provides counties to determine Medi-Cal eligibility and an analysis of the budget bill for the legislature administer aspects of the program; and, and other stakeholders to consider. Stakeholders, l Fiscalintermediary, or expenditures associated including lobbyists and the public, have an oppor- with the processing of claims. tunity to provide input to the governor and the The Medi-Cal estimate is prepared by DHCS’ Fiscal legislature on policy and budget priorities during Forecasting Division. Development of the estimate the budget process. California Health and Human involves extensive consultation and coordination Services (CHHS) and its departments’ directors are among DHCS, Health and Human Services Agency, often required to testify in front of the legislature Department of Finance (DOF) and Legislative on spending levels and requested budget changes Analyst’s Office. or increases. Once the estimate has been approved within the executive branch, it is used as the basis for the development of individual budget change Figure 2. Steps to the January Budget proposals. A Budget Change Proposal (BCP) is a proposal to change the level of service or funding nLocal Assistance Estimate is sources for activities, to implement a new state or developed federal requirement, or to propose new program nImpact of anticipated policy Initial Budget changes are estimated activities not currently authorized. Budget change Estimates nGovernor’s policy and funding proposals accompany the governor’s overall priorities are established budget package (including the estimate) and are the basis of budget hearings held by the legisla- nDOF develops baseline budget ture to review, discuss, and approve or reject each guidance for CHHS component of the governor’s proposal. nDepartments under CHHS Analysis & Initial develop BCPs January Budget Projections On or before January 10 of each year, the gov- ernor must submit a budget bill to the legislature for the following state fiscal year, after which the nCHHS provides final BCPs to Senate Budget and Fiscal Review Committee and DOF for review nDOF develops budget for the Assembly Budget Committee conduct budget Budget Bill Prepared governor to review and approve hearings. Budget issues related to Medi-Cal are nGovernor sends January budget assigned to the Health and Human Services sub- bill to the legislature committees in both the assembly and the senate. Hearings typically start in March, and the sub- committees provide recommendations to the full budget committee in each house at the end of this California Health Care Foundation www.chcf.org | 2 FEBRUARY 2019 May Budget Revision required in order to implement changes to benefits The input received on the January budget from or populations covered. Program adjustments may stakeholders and legislators and an update of the take effect immediately (requiring a retroactive state’s overall fiscal condition is considered by adjustment and contract update) or on a specified the governor and DOF throughout the spring. An future date in the fiscal year. Plans and providers updated Medi-Cal estimate, overall state budget, are often informed of these changes via All Plan and the required budget bill, with details on indi- Letters (APLs) (for the health plans) and provider vidual department spending, are released by the bulletins (for FFS changes).2,3 executive branch in May. This process, known as the “May Revise,” results in Looking Ahead another round of legislative hearings. The Medi-Cal program faces a great deal of uncertainty at the federal level, with a continuing Adoption of the Budget threat of funding reductions.4 Because Medi-Cal is The legislature reviews and approves its final ver- an entitlement program, any significant decrease sion of a budget bill by June 15; the new budget in federal funding results in the state bearing the year begins on July 1. The package of “trailer additional cost of providing the benefits required bills” that contain the statutory changes needed under state law, or the state can eliminate or reduce to implement the budget actions are approved covered services and/or populations. There are by the legislature concurrent with or in the weeks several other uncertainties that could have a sig- following approval of the budget bill. nificant impact on the Medi-Cal budget, including: The final budget bill (and trailer bills) are sent to the l Section 1115 Waiver Expiration. California’s governor for his review and action. The governor Section 1115 waiver, called Medi-Cal 2020, has has line-item veto power and can reduce or elim- provided $6.2 billion in federal funding over five inate any appropriation contained in the budget. years and will expire on December 31, 2020.5 The legislature can override any vetoed item by a two-thirds vote in both houses. Figure 3. Steps to the May Revise and Final Budget Process for Program Changes nHealth subcommittees meet Program changes and legislative mandates that impact cost and utilization often require adjust- Legislative ments to the Medi-Cal budget that result in Review changes to both fee-for-service (FFS) and Medi-Cal managed care rates and services. Program changes may include an addition, modification, nLAO provides an analysis of the or elimination of a benefit or service; a provider budget bill FFS rate change; an eligibility change; or an addi- nOther stakeholders engage Stakeholder nBudget hearings are held tional administrative requirement placed on health Input plans. While many program changes align with the budget year, they can also result in adjustments that must be made mid-year. nThe May Revise is released These mandates and program changes are nor- nLegislaturemust approve the mally itemized on the capitation rate sheets that May Revise Finalized budget bill by June 15 plans receive from DHCS, with the adjustments developed by the actuary from information pro- vided by DHCS on the estimated impact on costs and utilization. Contract changes are also often California Health Care Foundation www.chcf.org | 3 FEBRUARY 2019 The Section 1115 waiver includes numerous lProp 56 Funding. Proposition 56 increased payment and delivery system reform initiatives, taxes on tobacco products effective April 1, all of which were expected to generate savings 2017, and requires that the majority of these to both the state and the federal government. funds be used to supplement provider pay- The entire waiver and the amount of federal ments for specific services and to fund the funding will have to be renegotiated with CMS growth in the Medi-Cal budget.7 For FY 2017- starting in 2019. 18, this provided $1.4 billion for provider pay- ment increases and $880 million in GF offsets. l Reduced ACA Funding. Federal matching However, the legislature and governor have the funds for the optional expansion population, authority each year to determine how the pro- which is the eligibility group created under the vider payments are structured and the amount Affordable Care Act (ACA) that allowed states that is available for provider increases rather to cover non-elderly adults without depen- than GF offsets, so the effect on the overall dent children if they meet Medicaid income Medi-Cal budget can change from year to year. requirements, will continue to be reduced. This population was fully funded by the federal gov- l Economic Downturn. An economic downturn ernment for several years. However, the state’s could significantly reduce the amount of general share for this population will increase again in fund revenue available to finance the program. 2020, which is projected to increase General While the state is projected to hold nearly 10% Fund (GF) costs by $1 billion. of its overall budget in a “rainy day fund” by the end the current fiscal year, the simultaneous lMCO Tax Renegotiation. For many years, increase in Medi-Cal enrollment as tax revenue California has used the managed care orga- declines has led to deep cuts in eligibility and nization (MCO) tax, which is a tax on health benefits during previous recessions. plans that is specifically earmarked to fund the Medi-Cal program. Once the tax is collected, the funds can be used like any other state funds, and California receives the applicable federal matching dollars. The most recent fed- eral approval of matching funds, which resulted in a $1.8 billion state GF offset for FY 2017-18, required significant negotiation with the federal government and included a requirement that California implement a broader tax to include plans that are not contracted with Medi-Cal. The MCO tax expires again in July 2019. This loss of federal funding is estimated to result in increased state GF expenditures of $1.3 to $1.8 billion per year.6 lProp 55 Funding. Proposition 55, a voter-ap- proved continuation until December 31, 2030 of a personal income tax increase on high-income earners (the top 1%) in California, primarily funds public schools but allocates 50% of any excess revenues to the Medi-Cal program.6 However, the amount of funding actually avail- able to Medi-Cal is subject to broad interpreta- tion by the DOF. It is unknown at this time how significant the excess funds will be. California Health Care Foundation www.chcf.org | 4 FEBRUARY 2019 Endnotes Acknowledgments 1.Governor’s Budget Summary 2019 – 20: Health and About Health Management Associates Human Services, California Dept. of Finance, www. Health Management Associates (HMA) is an inde- ebudget.ca.gov. pendent national research and consulting firm in 2. “Medi-Cal Managed Care All Plan, Policy, and Dual Plan Letters,” California Department of Health Care Services, the healthcare industry. HMA helps clients stay last modified November 28, 2018, www.dhcs.ca.gov/form- ahead of the curve in publicly funded healthcare by sandpubs/Pages/MgdCarePlanPolicyLtrs.aspx. providing technical assistance, resources, decision 3. “DMC Regulations and Provider Bulletins,” California support and expertise. Department of Health Care Services, last modified July 18, 2016, www.dhcs.ca.gov/provgovpart/Pages/Regulations_ www.healthmanagement.com and_Provider_Bulletins.aspx. About Chapman Consulting 4. “Fiscal Outlook: Medi-Cal,” Legislative Analyst’s Office, November 15, 2017, https://lao.ca.gov/Publications/ Chapman Consulting provides strategic planning, Report/3715. meeting facilitation, organizational support, and 5. “Medi-Cal 2020 Progress Reports,” California Department regulatory and statutory analysis, to a variety of of Health Care Services, last modified October 23, 2018, health care related organizations. www.dhcs.ca.gov/provgovpart/Pages/medi-cal2020pro- gressreports.aspx. 6. Proposition 55: Should California Maintain Higher Taxes on the Wealthiest to Fund Education, Health Care, and Other Services? September 2016, California Budget & Policy Center. https://calbudgetcenter.org/resources/ proposition-55-california-maintain-higher-taxes-wealthi- Medi-Cal Explained is an ongoing series on est-fund-education-health-care-services/ Medi-Cal for those who are new to the pro- 7. Proposition 56: Should California Voters Increase the State gram, as well as those who need a refresher. Excise Tax on Cigarettes and Other Tobacco Products? To see other publications in this series, visit October 2016, California Budget & Policy Center. https:// calbudgetcenter.org/blog/proposition-56-california-vot- www.chcf.org/MC-explained. ers-increase-state-excise-tax-cigarettes-tobacco-products/ California Health Care Foundation www.chcf.org | 5