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Last Updated: 5/18/2012
Budget Issue: 2012-13 May Revise: Analysis of the Governor’s Proposed Changes to the Healthy Families Program
Program: MRMIB (Healthy Families Program) and DHCS (Medi-Cal)
Finding or Recommendation: Governor's proposed May Revision caseload and other adjustments are reasonable. Continue to recommend the early transition in 2012-13 of the subset of Healthy Families Program (HFP) enrollees who would be transitioned anyway to Medi-Cal in 2014 under federal health care reform. Recommend the broader issue of the future of HFP be referred to policy committee.
Further Detail

Healthy Families Program–May Revise

Here we provide a brief description of the Governor’s January proposal to shift all enrollees in the Healthy Families Program (HFP) to Medi-Cal and the changes to this proposal that are part of the May Revision. We also briefly describe the Governor’s updates to the projected caseload growth in HFP. For further background information on HFP and Medi-Cal, and a more detailed response to the Governor’s January proposal, please see:


Medi-Cal Provides Medical Services to Low–Income Persons. In California, the federal Medicaid program is administered by the Department of Health Care Services (DHCS) as the California Medical Assistance Program or Medi–Cal. The Medi–Cal Program provides health care services to qualified low–income persons—primarily families with children, seniors, and persons with disabilities. In 2011–12, the administration estimates a total Medi–Cal caseload of 7.6 million beneficiaries.

The HFP Provides Health Insurance to Low-Income Children. The HFP is California's Children’s Health Insurance Program (CHIP) and provides health insurance for about 873,000 children up to age 19 in families with incomes above the thresholds needed to qualify for Medi–Cal but below 250 percent of the federal poverty level (FPL). (The FPL is about $22,350 in annual income for a family of four.) The HFP is administered by the Managed Risk Medical Insurance Board (MRMIB), which provides coverage by contracting with health plans that provide health, dental, and vision benefits to HFP enrollees. Under state law, the benefits that HFP provides to enrollees are required to be equivalent to benefits provided to state employees through the California Public Employees' Retirement System, with certain exceptions for mental health benefits.

The Governor’s January Proposal

Governor Proposed Changes to HFP to Yield Budget Savings. In January, the Governor proposed to:

  • Require MRMIB to reduce the negotiated rates paid to HFP managed care plans to bring those rates in line with the cost to cover a child under Medi-Cal, when adjusted for the cost to provide benefits that are covered by HFP plans but ‘carved-out’ of Medi-Cal managed care rates.
  • Shift the children enrolled in HFP, which is administered by MRMIB, to Medi–Cal, which is administered by DHCS.

The administration expected the proposal to yield net General Fund savings of $64 million in 2012–13.

May Revise Update

      Here we describe the changes to the Governor’s proposal to transfer HFP enrollees to Medi-Cal and other adjustments to HFP included in the May Revision.

HFP Rates Will Be Reduced by Slightly Less. The administration adjusted the average Medi-Cal estimated per member per month (PMPM) costs from $77 PMPM to $84 PMPM. (This Medi-Cal PMPM has been calculated to reflect the benefits that are provided by HFP plans, but carved out from Medi-Cal managed care rates.) This now represents a 19 percent average reduction in rates paid to HFP plans. This is less than the 25.7 percent average proposed in January. The increased rate includes mental health benefits and increases to Medi-Cal administrative costs that were not included previously. The administration estimates savings from its revised proposal of $48.6 million for 2012-13.

Projected Savings in HFP and Medi-Cal Eroded Due to the Denial of Planned Increases to Copays and Premiums. The Governor’s January budget assumed savings resulting from increases to premiums and copays in HFP and Medi-Cal. The federal government has denied these increases. As a result, there will be an increased cost of $22.8 million in General Fund monies in 2012-13.

Enrollment Trends in HFP Have Remained Flat. The rate of caseload growth in HFP has declined in recent years. While the enrollment was growing at between 5 percent to 7 percent in 2006-07 through 2008-09, enrollment declined in 2009-10 and growth has remained nearly flat since then. This flattened enrollment may be a result of several factors, including: (1) the implementation of a wait list in 2009, which may have created uncertainty about the availability of HFP benefits, (2) a decrease in funds dedicated to outreach activities, and (3) economic factors that have led lower income HFP enrollees to become eligible for Medi-Cal. The administration’s caseload estimates for 2012-13 assume continued flat rates of growth in HFP.

HFP Enrollees Are Switching to Higher Cost Plans. The May revision reflected a net increase of $3.1 million in General Fund monies, primarily due to HFP enrollees selecting higher cost plans. The increase also reflects increased program expenditures due to wraparound payments to Federally Qualified Health Centers and Rural Health Centers.

Analyst’s Findings

Here we describe our findings regarding the Governor’s May Revision proposal:

  • The Adjustment of the Medi-Cal Rate Is Reasonable.The increase to the Medi-Cal PMPM rate from $77 to $84 is reasonable because it now includes some mental health benefits and increased Medi-Cal administrative costs that were previously not included.
  • The Caseload Projections Are Reasonable. Based on our analysis of HFP enrollment data, we find that the Governor’s projection of continued flat enrollment into HFP is reasonable. The administration has also adjusted the caseload in HFP to reflect the transition of enrollees to Medi-Cal.
  • Other Adjustments Are Reasonable. The May Revision updates to reflect federal guidance which prevents HFP from realizing savings through increases to copays or premiums and the adjustments to reflect fluctuations in HFP enrollee’s plan choices are reasonable.

Analyst’s Recommendations

We acknowledge that the Governor’s proposal to transfer all HFP enrollees to Medi-Cal has merit. However, we believe that the proposal also raises various budget and policy issues that we have outlined previously. We therefore continue to recommend that the Legislature:

  • Shift Select Portion of HFP Enrollees to Medi-Cal in 2012-13.Transition only the 186,800 children in families with incomes between 100 percent and 133 percent of the FPL from HFP to Medi–Cal in 2012–13. This is the portion of the HFP population that would shift anyway to Medi–Cal on January 1, 2014 pursuant to the Affordable Care Act. This transition would serve as a pilot program and allow the Legislature to monitor and evaluate the transition's effects on continuity of care and changes to provider networks.
  • Direct MRMIB to Report in Legislative Hearings on Transition Options.Direct MRMIB to report in budget or policy hearings on the benefits and the trade–offs of transitioning 186,800 HFP enrollees concurrent with their annual eligibility review rather than on the three–phase schedule proposed by the administration.
  • Refer Discussion of Future Structure of HFP to Policy Committee.Refer to the health policy committees the discussion of whether HFP should continue as a stand–alone organization, whether all HFP enrollees should be transitioned into Medi–Cal, and whether CHIP services should be provided through the exchange. We believe the policy committee process is the appropriate venue to evaluate these issues because they have broad implications for access to care and continuity of care that reach beyond the budget.
  • Direct MRMIB to Report on Rate Negotiations. Given that the Governor's target of a 19 percent reduction in rates is still very aggressive, MRMIB should report to the appropriate budget committees on the likelihood of achieving savings from this rate reduction target.

Fiscal Impact of LAO Alternative. If MRMIB is able to reduce the average rate paid to HFP plans to be equivalent to Medi–Cal levels when adjusted for carve–outs (as is assumed by the Governor's proposal), then our alternative would achieve the same level of savings assumed in the Governor's budget. If, however, MRMIB were unable to reduce rates to Medi–Cal levels, then our alternative would yield fewer savings than the Governor's proposal. Our alternative trades off this relative guarantee of budget savings with the benefit of proceeding in a manner that would allow full evaluation of the policy and budget implications of shifting all HFP enrollees to Medi-Cal.