The 2020-21 May Revision

Recommend Reduction to Medi-Cal
Caseload Costs

Background

Because eligibility for Medi-Cal depends on people’s income, enrollment in the program changes with changes in the economy. Medi-Cal’s caseload comprises several major population groups, each with somewhat distinct characteristics. The relationship between enrollment in Medi-Cal and the performance of the economy varies for these different Medi-Cal major population groups. One large Medi-Cal population group comprises children, parents, and childless adults (the last of which became eligible for Medi-Cal in 2014 under the Patient Protection and Affordable Care Act’s optional expansion). Adult members of this group, as well as the parents of these children, often participate in the labor market. As a result, their incomes and employment status tend to fluctuate alongside the performance of the economy and the availability of jobs. As the economy falters and job losses occur, these individuals tend to join Medi-Cal in fairly large numbers. When the economy has sustained periods of growth, the opposite tends to occur and these individuals leave in fairly large numbers.

Another major Medi-Cal population group comprises aged and disabled individuals. Due to their aged or disabled status, such individuals tend to participate in the labor market to a lesser extent. As a result, these individuals tend to remain on the program regardless of how the economy is performing. When the economy enters a period of poor performance, we expect to see relatively less caseload growth for this population group than for children, parents, and childless adults.

Administration Assumes Significant Caseload Growth in Medi-Cal Due to Coronavirus Disease 2019 (COVID-19). The administration projects that the deteriorating economic environment caused by the COVID-19 crisis will cause a surge in the Medi-Cal caseload of nearly 1.7 million people, reflecting a 13 percent increase beyond what Medi-Cal caseload would have been absent the crisis. This significant projected increase would bring total Medi-Cal enrollment to over 14 million people in 2020‑21, or more than one-third of the state’s population. (Throughout this analysis, we regularly describe the projected Medi-Cal caseload increases resulting from the economic and public health crisis caused by COVID-19 as “COVID-19-related” caseload increases.)

Assessment

Administration’s Caseload Projections—in Terms of Total Enrollees—Are Similar to What the LAO Projected in Early May… The administration’s projected caseload increase—in terms of total additional Medi-Cal enrollees—is fairly similar to what we projected in our Spring Outlook. While early and incomplete data on new Medi-Cal applications appear to show that enrollment may not be rising as quickly as expected in the face of unprecedented increases in unemployment, lowering expectations for total growth in the Medi-Cal caseload below around what the administration has assumed would be premature.

…However, the Administration Assumes Substantially Higher State Costs as a Result of Higher Caseloads. Across 2019‑20 and 2020‑21, the administration projects around $3 billion in higher General Fund costs in Medi-Cal due to COVID-19-related caseload increases. Despite being very close to our projection of total caseload growth, the administration’s projected costs resulting from COVID-19-related caseload increases are more than double what we projected in the Spring Outlook.

Administration’s Caseload Cost Projections Are Based on Questionable Assumptions About the Mix of Californians Who Are Likely to Join Medi-Cal… The administration’s cost projections for new COVID-19-related caseload are based on assumptions about the characteristics of new enrollees as well as enrollees who remain on the program due to a pause in disenrollments (as shorthand, we describe both populations as new entrants into the program). The characteristics of new enrollees affect how much each new entrant into Medi-Cal will cost the state. The following bullets summarize two of the administration’s major assumptions that raise questions. As we describe later, these assumptions have significant General Fund cost implications in Medi-Cal.

• Administration Assumes Significantly Higher New Enrollment of Seniors and Persons With Disabilities, Who Have High Costs. The administration assumes a significant share of new enrollees will be seniors and persons with disabilities. The administration’s projected rate of growth for this population is roughly equivalent to that for the childless adult population. We find the administration’s assumption questionable for two reasons. First, low-income seniors and persons with disabilities typically already are enrolled in Medi-Cal due to their age or disability and their incomes likely are less susceptible to economic conditions than those of families and childless adults. Second, even if a higher proportion of new enrollees under age 65 were to have disabilities, many would nevertheless likely qualify through the childless adult caseload group, which would result in significantly lower costs to the state relative to the administration’s assumption. This is because qualifying for Medi-Cal through the disabled caseload category—rather than the childless adult caseload category—comes with additional administrative burdens and can typically take over a year. In contrast to the administration, we expect COVID-19-related growth in the Medi-Cal caseload to be significantly more concentrated among children, parents, and childless adults—individuals whose eligibility for Medi-Cal, we believe, fluctuates to a much greater extent with the economy. Accordingly, we expect much lower growth among seniors and persons with disabilities than is assumed by the administration.

• Administration Assumes Limited Growth in Populations for Which the State Pays a Lower Share of Cost. In Medi-Cal, the state pays a 50 percent share of cost for parents, seniors and persons with disabilities, and most children. The federal government pays the share of cost not borne by the state. By contrast, the state pays a 10 percent share of cost for childless adults and around a 35 percent share of cost for children in families with incomes above traditional Medi-Cal eligibility thresholds, but who qualify through a special Medi-Cal subprogram (known at the federal level as the Children’s Health Insurance Program). In Medi-Cal today, childless adults and children in higher-income families comprise between 35 percent and 40 percent of Medi-Cal’s total caseload. However, in its COVID-19-related Medi-Cal caseload projections, the administration projects that 18 percent of new entrants into Medi-Cal would be childless adults or children in higher-income families (the caseload groups that have the lower state share of cost). We do not find this assumption by the administration reasonable. We would expect childless adult enrollees to grow relatively proportionally to their current share of today’s Medi-Cal caseload. We would expect that around 30 percent of new entrants into Medi-Cal be either childless adults or children in higher-income families, rather than the roughly 18 percent that the administration assumes.

Recommendation

We Recommend Adjusting the Medi-Cal Budget Downward by $750 Million General Fund Across 2019‑20 and 2020‑21. We estimate that the administration’s assumptions related to new entrants into Medi-Cal result in nearly $750 million in overstated General Fund costs. The figure below walks through our recommended adjustments to the administration’s COVID-19-related Medi-Cal caseload and cost estimate. As can be seen at in the top half of Figure 1, we recommend moving 60,000 new entrants from the seniors and persons with disabilities group into the childless adult group. This movement of new entrants from one caseload group to another is responsible for the majority of the General Fund cost adjustment that we recommend. The reason, as can be seen in the figure, is that childless adults have a projected General Fund cost per case that is less than one-tenth of that for seniors and persons with disabilities. In addition, we believe that the administration’s families caseload is somewhat overstated. Around two-thirds of non-senior, nondisabled adults in Medi-Cal are eligible through the childless adult group. As such, we believe it is likely that closer to half of new entrant adults (outside of seniors and persons with disabilities) would enroll through the childless adult caseload category.

In sum, we recommend a downward adjustment of $750 million General Fund to the Medi-Cal estimate across 2019‑20 and 2020‑21. We consider this a conservative adjustment for the following reasons. Even with our recommended adjustments, we project Medi-Cal’s seniors and persons with disabilities population to grow by around 3 percent. In addition, we expect that new entrants into the program will prove to be healthier than the existing enrollees on which we base our estimates of cost per case. For example, we do not expect new entrants to participate in Department of Developmental Services to the extent that current Medi-Cal enrollees do, lowering costs. By projecting new entrant costs per case based on existing Medi-Cal enrollees’ cases, we also build significant caution into our recommended projections. Ultimately, we believe our recommended adjustment to the Medi-Cal budget is conservative and would accommodate a reasonable amount of potential downside fiscal risk, such as that resulting from the total Medi-Cal caseload rising even faster than what the administration assumes in the May Revision.