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Last Updated: 5/18/2013
Budget Issue: Coordinated Care Initiative (CCI) May Revision Update
Program: Department of Health Care Services
Finding or Recommendation: Recommend adopting statutory changes to remove the following requirements for proceeding with CCI: (1) a six-month stable enrollment period; (2) shared federal savings; and (3) reference to specific level of ongoing savings.
Further Detail

Background on Coordinated Care Initiative (CCI)

For a detailed discussion of the CCI implementation plan as proposed in the Governor’s January budget, please see our February 2013 report The 2013-14 Budget: Coordinated Care Initiative Update.

Governor’s May Revision Proposal

In March 2013, the administration announced the signing of a Memorandum of Understanding (MOU) with the federal Centers for Medicare and Medicaid Services to implement the duals demonstration component of the CCI. The Governor’s May Revision contains a revised fiscal estimate for CCI to reflect (1) the requirements of the MOU and (2) a delay in the implementation schedule. The administration has stated that statutory changes are necessary for the state to proceed with CCI under the terms of the MOU, but had not released draft language at the time of this analysis. Here we explain the major policy and fiscal changes to CCI that have happened since we released our CCI update in February, and provide recommendations to guide the Legislature’s consideration of any statutory changes proposed by the administration.

MOU and Enrollment Delay Impose Changes to CCI Implementation

No Six-Month Stable Enrollment. The MOU does not require dual eligibles  to remain in the demonstration plan for six months before they may opt out. (Seniors and persons with disabilities who are eligible for both Medi-Cal and Medicare are known as “dual eligibles” and receive services paid by both programs.) Instead, dual eligibles may opt out of the Medicare portion of the duals demonstration at any time, taking effect at the beginning of the next month.

Enrollment Capped in Los Angeles County. The MOU caps enrollment in the duals demonstration for Los Angeles County at 200,000. This reduces total assumed enrollment (under full implementation) in the demonstration from 527,000 under the January budget to 457,000 under the May Revision.

Change in Implementation Schedule. The Governor’s January budget assumed an implementation start date of September 1, 2013. The administration has since announced that CCI enrollment will begin no sooner than January 1, 2014. Enrollment in Los Angeles County will take place over 12 months instead of the 16-month period proposed in the January budget.

Single Savings Target Instead of Medicare Shared Savings. During each year of the demonstration, a single statewide savings target will be applied to both the Medicare and Medi-Cal components of the joint capitated rate. For each demonstration plan, the state and CMS will apply county- and plan-specific adjustments to the statewide savings target to account for the risk profile of enrollees. Contrary to assumptions under the January budget, the MOU does not allow the state to share any savings resulting from the demonstration that would otherwise accrue to Medicare. 

Changes to CCI Implementation Significantly Reduce Savings

Under CCI, the state will incur upfront costs from making both managed care payments and retroactive fee-for-service (FFS) payments as beneficiaries and services transition to Medi-Cal managed care. To offset these costs, the Legislature adopted a payment deferral to Medi-Cal providers and managed care plans. Partially due to technical adjustments related to these overlapping payments and deferral, the May Revision assumes a savings erosion of $192 million compared to the January budget—resulting in a net General Fund cost of $21 million. (The Governor proposes to offset this cost by replacing the 2.4 percent gross premiums tax on Medi-Cal managed care plans with the 3.9 percent sales tax.) Figure 1 summarizes major differences between CCI assumed under the January budget and the May Revision.

No Medicare Shared Savings. As mentioned above, the MOU does not allow the state to share in savings accruing to Medicare. This erodes total CCI savings by $63 million during 2013-14 and $253 million under full implementation.

Lower Savings from Payment Deferral in 2013-14. Under the previous plan to begin CCI implementation on September 1, 2013, ten months of phased-in enrollment in the duals demonstration would occur during 2013-14. Under the revised plan to begin enrollment on January 1, 2014, only six months of phased-in enrollment will occur during 2013-14. The delay in implementation results in fewer Medi-Cal beneficiaries enrolled in managed care during 2013-14. Accordingly 2013-14 savings from the managed care payment deferral decrease from $295 million under the January budget to $199 million under the May Revision.

Greater Cost of LTSS Integration in 2013-14. The revised enrollment plan creates a shorter window for lagged FFS payments to be offset by future savings under managed care. That is, the state will continue to make payments on past FFS claims throughout the six months while also making monthly capitated payments to managed care plans. This results in greater upfront costs from overlapping managed care and FFS payments in 2013-14 than assumed under the Governor’s January budget.

Lower Enrollment. The May Revision assumes lower enrollment in the demonstration, presumably to reflect the enrollment cap in Los Angeles County.

Analyst’s Recommendation

We recommend the Legislature review and, if necessary, modify any draft language proposed by the administration to ensure the language addresses inconsistencies between existing statute and the MOU. Specifically, we recommend that the language remove the following requirements for proceeding with CCI: (1) a six-month stable enrollment period; (2) shared federal savings; and (3) reference to a specific level of ongoing savings, due to the net cost in 2013-14 and future uncertainty surrounding plan rate development and other fiscal aspects of CCI.