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2011

Other Budget Issues

Last Updated: 1/20/2011
Budget Issue: Increase premiums and copyaments, and eliminate the vision benefit for the Healthy Families Program
Program: Managed Risk Medical Insurance Board
Finding or Recommendation: Recommend the Legislature: 1) require MRMIB to report in budget hearings on the likelihood of obtaining federal approval for its proposals; 2) require the administration to provide the statutory language necessary to implement its proposals; 3) consider the copayment proposals in the Healthy Families Program (HFP) in tandem with those in Medi-Cal; 4) consider imposing lower copayment and premium increases than those proposed by the administration; and 5) eliminate the HFP vision benefit.
Further Detail

Healthy Families Program Overview

The Healthy Families Program (HFP) is California's federal Children’s Health Insurance Program (CHIP) and it provides health insurance for about 900,000 children up to age 19 in families with incomes up to 250 percent of the Federal Poverty Level (FPL). (The FPL is about $22,000 in annual income for a family of four.) The Managed Risk Medical Insurance Board (MRMIB) administers HFP and contracts with health plans that provide health, dental and vision benefits. Generally, families pay a monthly premium for each child enrolled in HFP (Premiums cover about 16 percent of total program costs.) and the state and federal government pay the remaining costs. For every dollar the state spends, the federal government provides roughly a two dollar match. The HFP has a tiered premium structure that specifies lower premiums for families under 150 of FPL, and higher premiums for higher-income families. Generally, HFP also has a tiered copayment structure that specifies lower copayments for families under 150 percent of FPL and higher copayments for families between 150 and 250 percent of FPL.

Governor’s Proposals

The Governor proposes to reduce General Fund costs in HFP through a combination of measures. First, the Governor proposes to make permanent the existing Managed Care Organization Tax and plans to use $97.2 million of the proceeds from the tax to support HFP. The Governor also proposes three cost containment measures in order to achieve total General Fund savings of $2.8 million in the current year and $39 million in the budget year.  We describe the proposals here.

Eliminate Vision Benefit. The Governor proposes to eliminate coverage for eye glasses and other specialized vision services for General Fund savings of $900,000 in the current year and $11.3 million in the budget year. Health plans would continue to provide vision testing, care for eye injuries, and eye refractions to determine the need for corrective lenses. This proposal would take effect June 1, 2011, after appropriate provider and beneficiary notification.

Increase Premiums. The Governor proposes to increase premiums for families with incomes at or above 150 percent of FPL for General Fund savings of $1.9 million in the current year and $22.2 million in the budget year. For families with incomes between 150 percent and 200 percent of FPL, premiums would increase by $14 per month per child (from $16 to $30) and the maximum monthly per-family premium limit would increase by $42 (from $48 to $90). For families with incomes between 200 percent and 250 percent FPL, premiums would increase by $18 per month per child (from $24 to $42) and the maximum monthly per-family premium limit would increase by $72 (from $54 to $126). This proposal would take effect June 1, 2011, after appropriate provider and beneficiary notification.

Increase Copayments. The Governor proposes to increase copayments for General Fund savings of $5.5 million in the budget year. Copayments for emergency room (ER) visits would increase by $35 (from $15 to $50). The Governor also proposes to impose copayments for inpatient stays of $100 per day with a maximum copayment of $200 per stay. There is currently a $250 per family annual copay limit and this limit would remain in effect under the Governor’s proposal. Much of this proposal conforms to a similar copayment proposal in the Medi-Cal program. It would take effect October 1, 2011, after appropriate provider and beneficiary notification.

Analyst’s Concerns and Comments

Here we provide our comments on the Governor’s proposals and raise concerns that the Legislature may wish to consider during its deliberations. 

Governor’s Proposals Need Federal Approval. Implementation of the premium increase, copayments, and elimination of the vision benefit require the Federal Centers for Medicare and Medicaid Services (CMS) to approve an amendment to the state’s CHIP plan. The MRMIB indicated that the state plan amendment (SPA) for elimination of the vision benefit should receive routine approval because the state is not required to provide these vision services. However, it is uncertain whether the CMS would approve the SPAs necessary to implement copayments and premium increases.

On June 17, 2010 the CMS sent MRMIB a letter in response to an amendment California proposed to make to its CHIP plan in order to implement premium increases. In this letter, CMS expressed concerns related to maintenance of effort requirements added to the Social Security Act by the Patient Protection and Affordable Care Act (PPACA), and requiring states, as a condition of receiving federal funding, to maintain the eligibility standards, methodologies, and procedures that were in effect upon enactment of PPACA. The letter further indicates that CMS has concerns regarding the implementation of premium increases. If the state fails to obtain federal approval for the required SPAs, it likely would not be able to implement the proposed cost containment measures without putting federal CHIP funds (approximately $750 million) and Medicaid funds (approximately $26 billion) at risk.

Copayment Levels May Deter Both Appropriate and Inappropriate Utilization of Services. The copayment levels proposed by the administration could have the effect of deterring inappropriate utilization of some services. For example, increasing the copayment for ER visits from $15 to $50 would likely deter the inappropriate utilization of ERs. This occurs when patients seek care at ERs for nonemergency conditions that could be more appropriately treated at a clinic or a doctor’s office. On the other hand, increased copayments could also deter the appropriate utilization of medical services by patients who have limited means. Delay or avoidance of appropriate utilization of medical services can result in the worsening of a medical condition, thereby necessitating more intensive and potentially more expensive medical treatments at a later time.  

Some Details are Lacking. At the time this analysis was prepared, the administration had not provided the Legislature with the statutory language necessary to implement its proposals. Accordingly, some of the details on how the proposals would be implemented are unknown. It is difficult to fully assess the potential effects of the proposals without a review of the implementing statute.

Copayment Levels for HFP Should Reflect Medi-Cal copayment Decisions. Medi-Cal is California’s version of the federal Medicaid Program that provides medical services to low-income persons The administration’s proposal to increase copayments in HFP is linked to its proposal to increase Medi-Cal copayments. In conversations with MRMIB, the department indicated it would be inequitable to increase copayments to low-income Medi-Cal beneficiaries unless these copayments are also increased for higher-income HFP subscribers.

Analyst’s Recommendations

The Governor’s proposals to eliminate vision benefits and increase copayments and premiums mirror proposals from the prior administration that were rejected by the Legislature. Due to the state’s fiscal condition, we recommend the Legislature reconsider the proposals. However, given the Legislature’s prior rejection of these proposals, we also provide alternatives for the Legislature to consider. Generally, our alternatives would have less impact on HFP subscribers and would achieve less in savings than the Governor’s proposals. We note it would be advantageous to enact a full package of changes at once in order to reduce administrative costs and to avoid the confusion that may be caused by multiple notifications to families whose children are enrolled in HFP.

Require Department To Report in Hearings on Federal Approval Requirements. We recommend the Legislature require the department to report in budget hearings on the likelihood of obtaining federal approval for the SPAs necessary to eliminate the vision benefit and implement copayments and premium increases.

Request Additional Detail Regarding the Governor’s Proposals. We recommend the Legislature require the administration to provide the statutory language necessary to implement its proposals. This will allow the Legislature to more fully assess the administration’s proposals.

Consider HFP Copayment Proposals In Tandem with Medi-Cal Proposals. We recommend the Legislature consider the copayment proposals in HFP in tandem with those in Medi-Cal, in order to ensure copayment policy consistency between the two programs. Specifically we recommend that the Legislature conform HFP copayments to any increases in copayments adopted for the Medi-Cal Program.

Consider Lower Copayment and Premium Levels. We recommend the Legislature consider imposing lower copayment and premium increases than those proposed by the administration. Some of the copayment and premium amounts proposed by the administration may be excessive for low-income populations needing Medi-Cal and HFP services. However, we caution that lower copayments and premiums would result in a lower level of General Fund savings than the administration’s proposals.

Eliminate Vision Benefit. We recommend the elimination of the vision benefit due to the state’s fiscal condition.

Use Managed Care Organization Tax to Support HFP. We recommend the Legislature continue to use Managed Care Organization Tax proceeds to support HFP. However, we do have some concerns that future federal regulations may affect this funding source.