According to an analysis by the California HealthCare Foundation (CHCF) of the governor’s revised budget, total General Fund spending for Medi-Cal will increase by $1 billion, from $10.9 billion in FY 2003-04 (after accounting adjustments) to $11.9 billion in FY 2004-05. Total spending for Health and Human Services programs (also adjusted) will increase over 10% during this period.

"In the revised budget released May 13, Governor Schwarzenegger rescinded many of the major cuts to Medi-Cal and other health programs originally proposed in January; however, substantial spending reductions remain," said Chris Perrone, senior program officer for CHCF.

In addition to the budget analysis, CHCF released a chart book, Medi-Cal Budget and Cost Drivers, that looks at Medi-Cal budget and program characteristics, compares California with other states, and examines budget trends and cost drivers. The presentation examines the impact of inflation, enrollment, health insurance trends, service costs, pharmacy costs, and differences between fee-for-service and managed care.

To generate Medi-Cal savings in the coming fiscal year, the May budget includes three new major cost savings initiatives efforts: a one-time delay in disbursement of provider payments, reducing drug reimbursement rates, and strategies designed to reconcile and validate eligibility data. Additionally, a proposed 3% rate increase to County Organized Health Systems to maintain their viability could save the General Fund $150 million annually in potential expenses.

Under the proposed budget, Medi-Cal enrollment would grow from 6.6 million in FY 2003-04 to 6.7 million in FY 2004-05.

The revised budget includes several other spending cuts that will have a significant impact on General Fund expenditures for health and related programs:

• Regional Center Cost Containment efforts: $100 million;
• Reducing the state share-of-cost for In-Home Supportive Services (IHSS) provider wages: $98 million;
• Imposing a Quality Improvement Fee on Medi-Cal managed care plans: $75 million; and
• Reducing reimbursement to federally qualified health centers and rural health clinics: $32 million or more.

The Governor also continues to seek federal authority to waive certain Medi-Cal requirements which would provide greater flexibility in program administration, according to Perrone. The CHCF analysis includes additional details on proposed program savings and initiatives for mental health services, the Department of Developmental Services, and In-Home Supportive Services (IHSS).

The revised budget includes funding to maintain many of the improvements made to the Medi-Cal and Healthy Families programs in recent years. Dropped from the Governor’s governor’s earlier plan was a 10% reduction in provider rates and a cap on Medi-Cal enrollment for immigrants at the January 1, 2004 level.

While eliminating his original enrollment cap and two-tier benefit structure for Healthy Families, the Governor governor has proposed an increase in premiums for all children with family incomes between 200% and 250% of the Federal Poverty Level. The budget includes funding to support continued enrollment growth in Healthy Families, which is expected to reach 774,000 by the end of FY 2004-05.

The May budget revision reaffirms the Governor’s governor’s intention to redesign the Medi-Cal program, but does not include any more specific information than was provided in January. According to the budget plan, the two overriding Medi-Cal redesign goals are maintaining current eligibility of low income populations, and containing costs and maximizing efficiencies.