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Other Budget Issues

Last Updated: 3/17/2010
Budget Issue: Reduce eligibility, increase premiums, and scale back benefits.
Program: Healthy Families Program
Finding or Recommendation: Adopt the Governor’s premium and vision coverage proposals. Consider the Governor’s eligibility proposal and the LAO alternatives.
Further Detail

This is an update to the recommendations on HFP found in our report, The 2010-11 Budget: How the Special Session Actions Would Affect Health Programs.  For background on the Governor’s budget proposals related to HFP and our initial analysis, see our report here. In this update, we offer two alternatives related to the Governor’s proposal to reduce eligibility for HFP from 250 percent to 200 percent of the federal poverty level (FPL).

First LAO Alternative. If the Legislature wishes to reduce eligibility for families with incomes from 201 to 250 of the FPL, it may be possible to exclude children ages 0 to 5 from the reduction without losing any savings. The state share of cost for these children is currently funded through a contribution from the California Children and Families (First 5) Commissions. The Governor’s budget assumes that this funding will continue in 2010-11.  Accordingly, we recommend that, if it decides to adopt the Governor’s eligibility reduction, the Legislature also adopt trailer bill language specifying that eligibility shall remain the same for children 0 to 5, to the extent that First 5 funds are available to pay for their coverage.  The Managed Risk Medical Insurance Board (MRMIB) states that this change would require the federal Centers for Medicaid and Medicare Services (CMS) to approve a state plan amendment. This alternative would result in the same 2010-11 General Fund savings as the Governor’s proposal to reduce eligibility ($63.9 million), since the children’s coverage would be funded by First 5 at its discretion and no additional state funds would be used.

Second LAO Alternative. If the Legislature does not wish to reduce eligibility for HFP , we recommend raising premiums for families earning from 201 to 250 of FPL instead, in order to achieve a portion of the proposed savings.  An increase in premiums from the current $24 per child per month level to $42 per child per month (with a family maximum of $126 per month in families with 3 or more children) would be commensurate with the premium increases proposed for families with incomes of 151 to 200 percent of the FPL.  If both premium increase proposals were implemented, the maximum amount families in both income groups would pay annually would be approximately 4 percent of family income. This level of cost-sharing is well within federal cost-sharing limits of 5 percent of family income, and most families would pay less than this maximum amount.  This alternative would save approximately $16.4 million from the General Fund in 2010-11, in comparison to the $63.9 million that the state would save if it adopted the proposed eligibility reduction.  This savings amount assumes the change is enacted by May 1, 2010 and that the new premiums are effective June 1, 2010.  This also assumes that the Governor’s proposed reductions to vision coverage and premiums are adopted.