The 2017-18 Budget

California Spending Plan

(Final Version)

Health


Overview of Spending. The spending plan provides $21.7 billion General Fund for health programs. This is a relatively modest increase of about $200 million, or 1 percent, compared to the revised 2016‑17 spending level, as shown in Figure 12. This year‑over‑year net increase reflects a number of major actions and policy changes adopted by the Legislature as part of the 2017‑18 spending plan, as shown in Figure 13. These include, among others, (1) the creation of General Fund savings through the use of Proposition 56 (2016) resources to support some of the anticipated spending increases from year‑over‑year growth in the Medi‑Cal program, (2) increased General Fund spending in the Children’s Health Insurance Program (CHIP) due to an assumed loss of federal funding, (3) the restoration of previously eliminated adult dental benefits under Medi‑Cal, and (4) savings generated in the Department of State Hospitals (DSH) due to the transfer of responsibility and funding for inpatient psychiatric programs from DSH to the California Department of Corrections and Rehabilitation (CDCR).

Figure 12

Major Health Programs and Departments—Spending Trends

General Fund (Dollars in Millions)

2016-17

2017-18

Change From
2016-17 to 2017-18

Amount

Percent

Medi-Cal—local assistance

$18,940

$19,518

$577

3%

Department of State Hospitals

1,795

1,502

-293

-16

Department of Public Health

153

136

-17

-11

Other Department of Health Care Services (DHCS) programs

365

265

-100

-27

Office of Statewide Health Planning and Development

33

33

a

Emergency Medical Services Authority

9

9

DHCS—state administration

207

210

3

1

Totals

$21,469

$21,673

$204

1%

aInfinite increase.

Figure 13

Major Actions—State Health Programs

2017-18 General Fund Effect (In Millions)

Program

Amount

Medi-Cal—Department of Health Care Services

Uses Proposition 56 monies to pay for year-over-year program growth

-$711.0

Assumes reduction in federal Children’s Health Insurance Program funding

369.0a

Repeals scheduled transition of Newly Qualified Immigrants into Covered California

48.0

Restores full adult dental benefits

34.8

Funds CA-MMIS continuing operations and replacement

2.7

Establishes medically-tailored meals pilot program

2.0

Implements Palliative Care Program

1.3

Abolishes Major Medical Risk Insurance Fund

-47.0

Office of Statewide Health Planning and Development

Maintains the expansion of residency programs for primary care physiciansb

$33.3

Department of Public Health

Provides one-time funding for operation of Parkinson’s Disease Registry

$1.7

Department of State Hospitals

Transfers inpatient psychiatric programs to CDCR

-$254.0

Expands incompetent-to-stand-trial treatment capacity

10.3

Activates additional beds at Metropolitan State Hospital

7.8

aIncludes a small portion of special funds from the Perinatal Insurance Fund.

bThe Legislature initially appropriated $100 million General Fund over three years, starting in 2016-17, for this program. The spending plan instead reflects the expenditure of these funds beginning in 2017-18. The Governor had proposed to repeal the full $100 million appropriation.

CA-MMIS = California Medicaid Management Information System and CDCR = California Department of Corrections and Rehabilitation.

Department of Health Care Services (DHCS)— Medi‑Cal

Overview. The spending plan provides $19.5 billion General Fund for Medi‑Cal local assistance expenditures administered by DHCS. This is an increase of $577 million, or 3 percent, compared to the revised 2016‑17 spending level. Spending in 2016‑17 was about $1.2 billion higher than the 2016‑17 budget appropriation. The higher spending in 2016‑17 compared to the appropriation is the net result of a variety of factors, including (1) a miscalculation of the costs and savings associated with the Coordinated Care Initiative (CCI) and (2) the unanticipated payment in 2016‑17 of funds to the federal government for prescription drug rebates.

Medi‑Cal General Fund spending between 2016‑17 and 2017‑18 would have grown at a higher rate if not for the availability of higher special fund revenues used to support the Medi‑Cal program in 2017‑18 compared to 2016‑17. These special funds include revenues from the managed care organization tax, the hospital quality assurance fee, and Proposition 56. A portion of these higher revenues reflects the timing of payments, rather than an increase in ongoing revenues. We discuss some of the major policies that were adopted as part of the 2017‑18 Medi‑Cal budget below.

Proposition 56 Spending Package. Pursuant to the requirements of Proposition 56, a voter‑approved initiative that raised state taxes on tobacco products, the spending plan allocates around $1.3 billion in Proposition 56 revenue to Medi‑Cal in 2017‑18. Of this amount, $546 million is dedicated to fund increases to provider payments, and the remaining $711 million will support anticipated spending increases from year‑over‑year growth in the Medi‑Cal program. Figure 14 summarizes the Proposition 56 Medi‑Cal spending package.

Figure 14

Proposition 56 Medi-Cal Spending Plan

(In Millions)

2017-18

Increases to provider payments

Physician servicesa

$325

Dental servicesa

140

Women’s healthb

50

Intermediate Care Facilities for the Developmentally Disabledb

27

HIV/AIDS Waiver Programb

4

Subtotal

($546)

Revenue dedicated to fund growth in existing Medi-Cal program

$711

Total

$1,257

aPhysician and dental services provider payments could be increased to up to about $720 million in 2018-19 (bringing total 2018-19 Proposition 56 funding for increased provider payments to $800 million). After 2018-19, physician and dental services provider payments will be reevaluated.

bPayment increases are intended to be ongoing.

The plan for distributing the physician and dental services provider payment increases has been developed by DHCS and submitted for federal approval, which at the time of this publication remains pending. These payment increases will take the form of supplemental payments targeted toward certain provider types and certain physician and dental services.

We note that budget‑related legislation stipulates that all increases to provider payments using Proposition 56 funding in 2018‑19—that are intended to total up to $800 million—may be adjusted by the Department of Finance based on the state’s fiscal condition.

Restores Full Adult Dental Benefits Beginning January 1, 2018. The spending plan restores full adult dental benefits in Medi‑Cal beginning January 1, 2018—by restoring benefits (such as gum treatments and partial dentures) that had been eliminated—at a cost of $34.8 million General Fund ($73 million ongoing). (In 2013‑14, some adult dental benefits that had been eliminated, such as cleanings and fillings, were restored.) The spending plan also schedules the restoration of optical benefits in Medi‑Cal beginning January 1, 2020, at an ongoing cost of $26.3 million General Fund. Both of these benefits are optional Medi‑Cal benefits—meaning the state is not required to provide the benefit, but may do so with a federal financial participation, under federal Medicaid law—that were fully eliminated during the recession.

Repeals the Scheduled Transition of Newly Qualified Immigrants (NQIs) From Medi‑Cal to Covered California. Legislation enacted in 2013 required that, in addition to conforming state law to several Patient Protection and Affordable Care Act (ACA) regulations, NQIs eligible for full‑scope Medi‑Cal as a result of the ACA optional expansion transition from the state‑only Medi‑Cal program into subsidized coverage through Covered California. (This transition had been delayed until January 1, 2018.) The spending plan reflects the Legislature’s decision to no longer pursue the transition of all NQIs to Covered California, at a cost of $48 million General Fund in 2017‑18 ($100 million ongoing).

Abolishes the Major Risk Medical Insurance Fund (MRMIF), While Continuing the Major Risk Medical Insurance Program (MRMIP). MRMIP, which was originally conceived as the state’s high‑risk pool, provides health insurance coverage to individuals who, prior to the ACA, could not obtain coverage or were charged unaffordable premiums in the individual health insurance market because of their preexisting conditions. MRMIF pays for any MRMIP costs in excess of what MRMIP enrollees pay in the form of premiums, deductibles, and copayments. As a result of the ACA’s prohibition on health insurers denying coverage based on preexisting conditions, MRMIP enrollment has steadily declined in recent years. The spending plan abolishes the MRMIF and transfers its remaining fund balance and any ongoing revenue from the Managed Care Administrative Fines and Penalties Fund into a newly created Health Care Services Plans and Penalties Fund, also administered by DHCS. Once the Health Care Services Plans and Penalties Fund covers all estimated MRMIP expenses, the spending plan estimates a General Fund savings of $47 million in 2017‑18 from using the fund’s remaining balance and ongoing revenue to cover overall Medi‑Cal expenses.

Assumes Reduction in Federal CHIP Funding. CHIP is a joint federal‑state program that provides health insurance coverage to children in low‑income families, but with incomes too high to qualify for Medicaid. Beginning in federal fiscal year (FFY) 2015‑16, the ACA authorized an increased federal medical assistance percentage (FMAP)—or federal cost share—for CHIP through FFY 2018‑19. (An FFY runs from October 1 through September 30.) Under the ACA, California’s CHIP FMAP increased from 65 percent to 88 percent. The ability of California to draw down federal CHIP funds at this higher FMAP, however, is dependent on Congress’ decision regarding the appropriation of funding for CHIP beyond FFY 2016‑17, as Congress has only appropriated funding for CHIP through FFY 2016‑17. The spending plan assumes CHIP funding is reauthorized in FFY 2017‑18, but at a 65 percent FMAP in California instead of the 88 percent FMAP authorized by the ACA. At this lower FMAP, DHCS estimates the state will spend an additional $369 million (mostly General Fund) in 2017‑18 (relative to what it would have spent at the ACA‑enhanced FMAP of 88 percent).

Provides Funding for Continued Operation of Existing California Medicaid Management Information System (CA‑MMIS) and for Early‑Stage Development of a Replacement System. The spending plan provides $2.1 million General Fund to convert 21 limited‑term positions to permanent positions for maintenance and operations for CA‑MMIS, Medi‑Cal’s fee‑for‑service payment processing system. In addition, the spending plan provides $575,000 General Fund to support seven permanent positions at DHCS to begin early‑stage development of a CA‑MMIS replacement system. The spending plan also gives the administration increased expenditure authority of up to $2.5 million General Fund to implement the Advantage Collections Application module of the replacement project, which will assist Third Party Liability business processes within DHCS.

Behavioral Health

Revises State Policy Related to Reversion of Unused Local Mental Health Services Act (MHSA) Funding. The spending plan includes budget‑related legislation revising the state’s reversion policy for unused county MHSA funding. The MHSA, approved by voters in 2004, generally requires unused county MHSA funding to revert to the state after three years and be made available for use by other counties. To date, the state’s MHSA reversion policy has not been enforced and counties have built up large balances of MHSA funding potentially subject to the state’s reversion policy. The budget‑related legislation would make a number of changes to the state’s MHSA reversion policy. Among other changes, these include: (1) holding counties harmless for unused MHSA funds potentially subject to reversion for fiscal years prior to 2017‑18, (2) requiring counties to submit a plan to spend down current balances of unused MHSA funds by July 1, 2020, (3) extending the reversion period from three years to five years for small counties, (4) requiring reverted funds to be reallocated to other counties for the same purposes for which they were originally allocated, and (5) resetting the reversion period start date for county innovation funding to the date that the state approves a county’s innovation plan, rather than date in which the funds are allocated.

Department of Public Health (DPH)

The spending plan provides approximately $3.2 billion from all fund sources for DPH programs, up from about $2.9 billion in 2016‑17 (a 10 percent increase). Under the budget plan, General Fund spending for DPH will decline from $153 million to $136 million, or by 11 percent. This year‑over‑year decrease in General Fund spending is largely the result of one‑time spending augmentations in 2016‑17 that are ending. In addition, $3.4 million in Proposition 56 revenues will offset General Fund spending in DPH’s Oral Health Program. (The spending plan also reflects various funding and policy changes for DPH to implement regulations and issue manufacturer licenses under the state’s medical and recreational marijuana laws, which we describe in the “Other Major Provisions” section of this report.)

Expenditure of Proposition 56 Revenues. The spending plan includes $226.1 million and 57 positions from Proposition 56 (tobacco tax) revenues to implement the provisions of Proposition 56 related to DPH programs, as follows:

  • $181.1 million for the Tobacco Control Branch to fund media campaigns, provide grants to local health departments and other organizations, and conduct program evaluation in an effort to prevent and reduce tobacco use.
  • $37.5 million for the Oral Health Program to develop a statewide infrastructure to promote oral health education and disease prevention and treatment.
  • $7.5 million for tobacco law enforcement efforts, specifically DPH’s Stop Tobacco Access to Kids Enforcement (STAKE) Program. Funding will enable DPH to double the number of annual retailer compliance checks (to 5,600) that it conducts to prevent tobacco sales to minors and establish a grant program and training program for local law enforcement agencies.

Office of AIDS. The spending plan reflects various policy changes and an increase of $5.2 million from federal funds and drug rebate funds for the Office of AIDS to: (1) improve client health outcomes by implementing standards of care at HIV Care Program providers and a Clinical Quality Management Program and (2) increase the number of enrollment workers and improve the enrollment process for Office of AIDS program participants. In addition, budget‑related legislation clarifies eligibility for the HIV Pre‑Exposure Prophylaxis Program (PReP)—a program to prevent HIV infections—to include those who are uninsured.

Department of State Hospitals (DSH)

Under the budget plan, General Fund spending for DSH will be about $1.5 billion in 2017‑18, a decrease of $293 million, or 16 percent, from the revised 2016‑17 level. The year‑over‑year net decrease is largely due to the transfer of responsibility and funding for inpatient psychiatric programs from DSH to CDCR. For more information on this transfer, please see the “Judiciary and Criminal Justice” section of this report.

Additional Incompetent‑ to‑Stand‑Trial (IST) Treatment Capacity. The budget provides a $10.3 million General Fund augmentation to expand IST patient treatment capacity. This includes (1) $7.2 million to activate a 60‑bed Admission, Evaluation, and Stabilization (AES) Center in the Kern County jail and (2) $3.1 million to expand Jail‑Based Competency Treatment (JBCT) programs to additional counties. In addition, the budget package includes budget trailer legislation to authorize DSH—rather than trial court judges—to place IST patients in the AES Center and JBCT programs.

Other Adjustments. The budget provides $7.8 million from the General Fund to activate additional beds at DSH‑Metropolitan. In addition, the budget provides $5.7 million from the General Fund to construct a new courtyard at DSH‑Coalinga, as well as reappropriates $11.5 million that was appropriated in prior years to renovate existing units at two DSH hospitals into Enhanced Treatment Units designed specifically for violent patients.