| Last Updated: | 5/17/2014 |
| Budget Issue: | Mandatory Medi-Cal expansion cost estimates |
| Program: | Department of Health Care Services |
| Finding or Recommendation: | Reduce Governor's May Revision Medi-Cal budget by roughly $300 million to reflect lower per enrollee cost assumptions for the mandatory Medi-Cal expansion. |
The Governor’s May Revision estimates that total General Fund spending for the Medi-Cal program in 2013-14 and 2014-15 will be about $900 million higher than what was estimated in the Governor’s January 10 Budget. One of the primary drivers of the net increase in costs is related to estimated costs for additional Medi-Cal enrollment among previously eligible populations who, absent the federal Patient Protection and Affordable Care Act (ACA), would not have enrolled in the program. The costs associated with the additional enrollment among previously eligible populations is often referred to as the mandatory Medi-Cal expansion. Below, we briefly describe: (1) the mandatory expansion, (2) the Governor’s May Revision mandatory expansion cost estimates and the major assumptions upon which those estimates are based, (3) our assessment of the administration’s mandatory expansion cost assumptions, and (4) our recommendations to the Legislature based on our assessment.
Under the ACA, beginning January 1, 2014, California elected to expand Medi-Cal eligibility to low-income adults who previously did not qualify for the program—also known as the optional Medi-Cal expansion. The costs for these newly eligible enrollees are funded almost entirely with federal funds through 2016. In addition, the ACA contains several provisions that are expected to increase the number of persons that enroll in Medi-Cal who were eligible for Medi-Cal under pre-2014 eligibility standards (previously eligible). The factors that are expected to increase enrollment among the previously eligible population include:
Unlike health care services provided to newly eligible individuals, the state will generally be responsible for 50 percent of the costs for additional previously eligible Medi-Cal enrollees.
The May Revision estimates General Fund costs associated with the mandatory expansion will be $193 million in 2013-14 and $918 million in 2014-15—a total increase of about $600 million above what was assumed in the Governor’s January Budget. Mandatory expansion cost estimates are based on two key assumptions: (1) the number of additional enrollees and (2) the cost of providing health coverage to each additional enrollee. Relative to the Governor’s January Budget, the May Revision assumes both higher enrollment and higher costs per enrollee.
Below we provide our assessment of the key assumptions used by the administration when estimating mandatory expansion costs.
Assumptions Used to Estimate Enrollment Still Somewhat Unclear, But Estimates are Plausible. The type and scope of changes made by the ACA are largely unprecedented and the major provisions of the ACA have only been in effect for a few months. Therefore, estimates of additional enrollment associated with the mandatory expansion are subject to considerable uncertainty. See our report The 2013-14 Budget: Analysis of the Health and Human Services Budget and our letter to Senator Monning in May 2013 regarding this issue for more detail on our previous estimates of mandatory expansion costs and enrollment, and a more complete discussion of the uncertainty surrounding such estimates. The May Revision enrollment estimate for 2013-14 is similar to what we previously estimated (154,000) and the 2014-15 estimate is significantly higher than what we previously estimated (410,000), but still within a plausible range.
Our prior enrollment estimates were made without the benefit of having actual data on enrollment after the major ACA provisions went into effect. It is our understanding that the administration’s May Revision estimates relied on state administrative enrollment data through mid-April 2014—a few months after the major ACA provisions went into effect—to project additional mandatory expansion enrollees. We are still in the process of clarifying the data, methodology, and assumptions used by the administration to estimate mandatory expansion enrollment. However, based on our prior analyses of this issue and what we have learned about the administration’s methodology so far, the caseload estimates appear plausible. As we learn more about the data and assumptions used by the administration to estimate enrollment, we will notify the Legislature if we find any major issues.
Key Assumptions About Per Enrollee Costs Appear Too High. Prior to the May Revision, our office and the administration had very minor differences in estimated per-enrollee costs for the mandatory expansion population—roughly $140 for most enrollees and roughly $100 for certain children. In the May Revision the administration assumes a new, significantly higher PMPM cost for a large portion of individuals who are assumed to enroll in FFS. The administration’s methodology and assumptions used to estimate a high number of FFS enrollees is not entirely clear at this time. However, even if a significant portion of individuals enroll in FFS, it is unclear why the average costs would be significantly higher—nearly three times higher in some cases—than average costs for non-disabled adults and children enrolled in managed care plans. In our view, the administration’s estimated PMPM costs for individuals in FFS are likely too high and the average PMPM for existing managed care enrollees is a more reasonable estimate of PMPM costs.
When evaluating the administration’s PMPM assumptions for the mandatory expansion population, there are couple of important factors to keep in mind. First, the mandatory expansion population is defined as individuals who, absent changes made by the ACA, would be eligible for Medi-Cal but not enrolled. In our view, it is reasonable to assume that—compared to the non-disabled parents and children that are already enrolled in the Medi-Cal—the mandatory expansion population is likely healthy and, on average, less costly. If these individuals had significant and costly health care needs, they likely would have enrolled in the program.
In addition, we have concerns about using FFS costs for similar populations enrolled in FFS as a proxy for PMPM costs for mandatory expansion enrollees. The historical average FFS costs may include a disproportionately high number of costly services that likely would not apply to mandatory expansion enrollees. For example, non-disabled parents or children sometimes enroll in the program after visiting an emergency room and/or having an unexpected hospital stay--these costs are part of average FFS costs. In contrast, relatively few mandatory expansion enrollees will have FFS emergency room or hospital costs because, by definition, they are individuals who are enrolling in the program in response to factors such as enhanced outreach and streamlined enrollment process. Therefore, we would expect average mandatory expansion costs to be lower than existing average FFS costs.
Adjust Medi-Cal Budget To Reflect Lower PMPM Cost Assumptions for the Mandatory Medi-Cal Expansion. We recommend the Legislature reduce the Medi-Cal budget to reflect lower PMPM cost assumptions for mandatory expansion enrollees. We recommend the Legislature apply average PMPM costs for non-disabled parents and children that are currently enrolled in managed care—$139 for most enrollees and $97 for certain children in 2013-14—to the entire estimated mandatory expansion population. In our view, these PMPM cost assumptions are a more reasonable estimate of average PMPM costs for the mandatory expansion population than the much higher average PMPM assumptions—up to $369 dollars in some cases—used by the administration.
We estimate that this adjustment would reduce estimated Medi-Cal General Fund spending by roughly $300 million over 2013-14 and 2014-15—although the reduction could be tens of millions of dollars higher or lower. At this time, we do not have access to some of the details of the administration’s mandatory expansion enrollment estimates. Without some of these additional details, we are not able to provide a more precise estimate of how this adjustment would affect the overall estimate of costs. We will work with the administration to provide an updated mandatory expansion cost estimate that reflects our recommended adjustment.