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Other Budget Issues

Last Updated: 5/22/2011
Budget Issue: Transfer Healthy Families Program to Department of Health Care Services
Program: Department of Health Care Services
Finding or Recommendation: Recommend that the administration’s proposal to transfer Healthy Families Program be referred to policy committees. Recommend that the Legislature reject the administration’s proposed BBL that would provide DOF with authority to transfer both staff and expenditure authority between appropriations for MRMIB and DHCS just ten days after giving the Legislature notification.
Further Detail

Governor Proposes to Transfer Healthy Families Program to the Department of Health Care Services

The Governor’s May Revision budget plan includes a proposal to shift children in the Healthy Families Program (HFP) that is administered by the Managed Risk Medical Insurance Board (MRMIB) to the Medi-Cal Program that is administered by the Department of Health Care Services (DHCS).


Here we provide background information on HFP and Medi-Cal that serves to illustrate some of the similarities and differences between the two programs.

Medi-Cal. In California, the federal Medicaid program is administered by DHCS as the California Medical Assistance Program (Medi-Cal). The Medi-Cal Program provides health care services to qualified low-income persons, primarily consisting of families with children, seniors, and persons with disabilities. Federal law establishes some minimum requirements for state Medicaid programs regarding the types of services offered and who is eligible to receive them. Generally, each dollar spent on health care for a Medi-Cal enrollee is matched with one dollar from the federal government.

Medi-Cal provides health care coverage through two basic types of arrangements—fee-for-service and managed care. In a fee-for-service system, a health care provider receives an individual payment from DHCS for each medical service delivered to a Medi-Cal beneficiary. Beneficiaries generally may obtain services from any provider who has agreed to accept Medi-Cal payments. Under managed care, DHCS contracts with health care plans to provide health care coverage for Medi-Cal beneficiaries residing in certain counties. The health care plans undergo quality reviews conducted by DHCS and the Department of Managed Health Care publishes information regarding the plans’ quality in an annual Quality of Care Report Card that is available to the public on the Internet. In contrast to managed care arrangements, the network of FFS providers is not regularly monitored and measured for quality of care.

Most eligibility determinations and redeterminations for Medi-Cal are performed by counties and generally no premiums are collected from Medi-Cal enrollees.

Healthy Families Program (HFP). The HFP is California's federal Children’s Health Insurance Program (CHIP) and it provides health insurance for about 892,000 children up to age 19 in families with incomes above the thresholds needed to qualify for Medi-Cal and 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 provides coverage through a managed care arrangement by contracting with health plans that provide health, dental and vision benefits. Generally, families pay a monthly premium for each child enrolled in HFP 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.

The MRMIB contracts with a private vendor to do eligibility determinations and perform certain other administrative functions.

Federal Health Care Reform. The federal Affordable Care Act (ACA), also referred to as federal health care reform, implements broad changes to the nation’s health care system. Among these changes, it requires states to expand Medicaid eligibility for children to 133 percent of the FPL in 2014.

Proposal Has Merit, But Details Are Lacking

The Governor’s proposal would implement the Medicaid expansion for children to 133 percent of FPL required under federal health care reform and take the additional step of transitioning all the remaining HFP enrollees between 133 percent and 250 percent of FPL into Medi-Cal. The federal matching rate for HFP enrollees would continue. In addition, children in families with income less than 150 percent FPL would no longer make premium payments. The administration estimates that state savings would be generated primarily through the state’s ability to leverage Medi-Cal’s purchasing power by paying lower rates to health plans to provide health coverage.

According to the administration, the net partial-year statewide impact of this proposal is a General Fund savings of $31.2 million in 2011-12 with ongoing full-year savings of $75 million in the following years. This budget year net General Fund savings is the result of a reduction of $108.8 million in the HFP and an increase of $77.6 million in Medi-Cal expenditures.

Proposal Has Merit.   We believe certain aspects of the administration’s proposal have merit. Some of the potential benefits include the leveraging of the state’s purchasing power by consolidating its purchases of health care services, lower premiums and more affordable health coverage for some children, greater continuity of coverage for children when family income changes, and early implementation of changes required by the ACA.

Details Are Lacking. The administration has not provided a detailed plan for how the resources for administering HFP would be transferred from MRMIB to DHCS.  However the administration has requested Budget Bill Language (BBL) to provide DHCS with the flexibility to implement the reorganization proposal. The proposed BBL would give the Department of Finance (DOF) authority to transfer both staff and expenditure authority between appropriations for MRMIB  and DHCS. Prior to authorizing such a transfer DOF would give the Legislature 10 days notification. The notification would include the reasons for the transfer, the fiscal assumptions used in calculating the transfer amount, and any potential fiscal effects on the program from which funds are being transferred.

Legislature Should Seek More Information

In our view, before going forward with the Governor’s proposal, the Legislature needs to receive additional information. Specifically, the Legislature should require the administration to provide a transition plan before it authorizes the administration to move forward. At a minimum, the plan should answer the following questions:

  • What Would the Timeline for the Transition Be? The DOF should provide a timeline that shows when transfers of positions, expenditure authority and administrative functions between departments would occur.
  • How Would DHCS Be Reorganized? The DOF should provide a proposal for departmental reorganization that includes: (1) positions that would be eliminated at MRMIB; (2) positions that would be created at DHCS; (3) a revised organization chart for DHCS, and (4) workload description and justification for new DHCS positions.
  • What Efficiencies Would Be Achieved? The DOF should provide flow charts that show how key work processes transferred from MRMIB would be performed by DHCS. These flow charts should demonstrate any efficiencies that are achieved through the transfer by eliminating redundant steps.
  • What Would the Fiscal Impact Be on MRMIB and DHCS? The DOF should provide an estimate of the fiscal effect on state operations for MRMIB and DHCS.

Policy Issues for Legislative Consideration

Here we highlight some policy issues the Legislature may wish to consider in its deliberations.

  • Fee-for-Service May Not Offer Equivalent Care. The administration estimates that about 49,600 children reside in Medi-Cal fee-for-service counties and these children would receive fee-for-service instead of managed care. Because quality and access to fee-for-service care is not systematically measured, it is difficult to determine whether these children would  receive equivalent care after they are shifted into Medi-Cal.
  • Potential Disruption of Service for Some HFP Beneficiaries. The administration assumes that about 73 percent of the children that transfer into Medi-Cal managed care counties will be able to remain in the same plan in Medi-Cal as in HFP. Accordingly, about 27 percent of the children would switch to a new health plan or fee-for-service and may have to switch to a new primary care physician.
  • Eligibility and Case Management Issues. The administration has not provided details on how eligibility determinations and other administrative functions would be transitioned from the private vendor that HFP contracts with to the counties. Therefore, it is difficult to assess how such a transition may affect HFP beneficiaries or administrative costs.
  • Interaction With Other ACA Provisions. As implementation of ACA moves forward, including the development of the California Health Benefits Exchange, the Legislature should consider the merits of a system that would allow for low-income children enrolled in state health programs and their parents to obtain coverage from the same provider.

Analyst’s Recommendation 

We recommend that the administration’s proposal to transfer HFP beneficiaries into Medi-Cal in 2011-12 be referred to the appropriate policy committees for further consideration. We further recommend that the Legislature reject the administration’s proposed BBL that would provide DOF with authority to transfer both staff and expenditure authority between appropriations for MRMIB and DHCS ten days after giving the Legislature notification. However, if the Legislature does provide transfer authority through BBL, we recommend it modify the proposed BBL to require a comprehensive transition plan and at least a 45-day notification period to give the Legislature sufficient time to consider the proposal.