Legislative Analyst's Office
February 22, 1995

Health and Social Services Overview

Major Issues


General Fund expenditures for health and social services programs are proposed to decrease significantly in the budget year. Most of the net reduction is due to (1) shifting state costs to the counties and federal government and (2) welfare grant reductions.

Expenditure Proposal and Trends

The budget proposes General Fund expenditures of $11.4 billion for health and social services programs in 1995-96, which is 27 percent of total proposed General Fund expenditures. The budget proposal represents a reduction of $2.7 billion, or 19 percent, from estimated expenditures in the current year. The savings would be achieved primarily by:

Combined General Fund and special funds spending is projected to increase by 32 percent between 1988-89 and 1995-96. This increase is due to the growth in special funds, which results from the Governor's realignment proposal to shift certain welfare costs to the counties, accompanied by a transfer of state revenues and cost shifts to the state to offset most of the county costs.

Figure 1 also displays the spending for these programs adjusted for inflation. On this basis, General Fund expenditures are estimated to decrease by 19 percent between 1988-89 and 1995-96. Combined General Fund and special funds expenditures are estimated to increase by 6.2 percent during the same period, on a constant dollar basis. This is an average annual rate of increase of less than 1 percent.

Caseload Trends

Figures 2 and 3 (see next page) illustrate the caseload trends for the largest health and welfare programs. In both the health and welfare areas, significant increases coincide with the onset of the recession in 1990. Figure 2 shows the Medi-Cal caseload growth, broken out by traditional eligibility categories primarily AFDC and SSI/SSP recipients and newer eligibility groups persons recently made eligible by state and federal law, including newly legalized immigrants, undocumented persons, and pregnant women.

Figure 2 shows there was a significant upswing in the rate of increase in the Medi-Cal caseload, beginning in 1989-90. This occurred primarily because of rapid growth in both the AFDC Program and in the newer eligibility categories of Medi-Cal recipients. In 1995-96, one out of every six Californians will be eligible for the Medi-Cal Program. (For a more detailed discussion of caseload growth, please refer to our Analysis of the 1992-93 Budget Bill, page V-90.)

Figure 3 shows the caseload trend for the AFDC (Family Group and Unemployed Parent [FG&U]) and SSI/SSP Programs. While the number of cases in the SSI/SSP Program is greater than in the AFDC Program, there are more persons in the AFDC Program about 2.8 million compared to about 1 million for SSI/SSP. (SSI/SSP cases are reported as individual persons, while AFDC cases are primarily families.)

Caseload growth in these two programs is due, in large part, to the growth of the eligible target populations. The increase in the rate of growth in the AFDC caseloads in 1990-91 and 1991-92 was partly due to the effect of the recession. Since then, the caseload has continued to increase but at a slower rate of growth. This slowdown, according to the Department of Finance, was due partly to (1) certain population changes, including lower migration from other states, and (2) a lower rate of increase in child- only cases (including citizen children of undocumented and newly legalized persons), which was the fastest growing segment of the caseload until 1993-94. (For a discussion of other factors affecting the AFDC caseload, please see our report on the program in The 1991-92 Budget: Perspectives and Issues, page 189.)

The SSI/SSP caseload can be divided into two major components: the aged and the disabled. The aged caseload generally increases in proportion to increases in the eligible population age 65 or older. This component of the caseload accounts for about one-third of the total. The larger component the disabled caseload has been growing faster than the rate of increase in the eligible population group (primarily ages 18 to 64). This is due to several factors, including (1) the increasing incidence of AIDS-related disabilities, (2) changes in federal policy that liberalized the criteria for establishing a disability, (3) a decline in the rate at which recipients leave the program (perhaps due to increases in life expectancy), and (4) expanded state and federal outreach efforts in the program.

Spending by Major Programs

Figure 4 shows expenditures for the major health and social services programs in 1993-94 and 1994-95, and as proposed for 1995-96. As shown in the figure, the three major benefit payment programs Medi-Cal, AFDC, and SSI/SSP account for a large share of total spending in the health and social services area.

Major Budget Changes

Figures 5 and 6 (see page 12) illustrate the major budget changes proposed for health and social services programs in 1995-96.

Summary of Major Changes

Generally, the major changes can be grouped into the following categories:

1. The Budget Proposes to Fund Caseload Increases. This includes funding for projected caseload increases of 4.5 percent in the Medi-Cal Program and 3.6 percent in the AFDC Program. The budget projects a decline (0.8 percent) in the SSI/SSP Program due to proposed grant reductions and eligibility changes, but the budget proposes to fund the estimated caseload growth for the remainder of the caseload.

2. The Budget Proposes to Shift $1.9 Billion of State Costs to the Counties. This would be accomplished as part of the Governor's realignment proposal ($1.9 billion General Fund savings in social services programs, partially offset by state special fund costs for social services and General Fund costs for trial courts).

3. The Budget Proposes to Shift $453 Million of State Costs to the Federal Government. These costs would be for:

4. The Budget Proposes Major Program Reductions in the Medi-Cal, AFDC, and SSI/SSP Programs ($1 Billion General Fund Savings):

5. The Budget Proposes to Expand Health Services for Pregnant Women and Children. This would be accomplished by the following actions:

Savings Would Require Federal Action

The budget proposes numerous changes in the health and social services area that would be dependent on federal legislation ($1 billion in proposed General Fund savings) or federal waiver of regulations ($254 million General Fund savings). Figure 7 lists these proposals.

State and County Realignment

The Governor's realignment proposal involves a shift of $1.9 billion in spending for various social services programs from the state General Fund to the counties. To offset most of the increased county costs, the budget proposes a shift to the counties of sales tax revenues and trial court fines and penalties revenues, and state assumption of a higher share of trial court costs.

As shown in Figure 8, the spending shift would be accomplished by increasing the county share of costs for the AFDC Program, the Child Welfare Services Program, adoptions programs, and the Child Abuse Prevention Program. This proposal differs from the Governor's restructuring proposal for 1994-95 in that it is smaller in scope and excludes some programs (primarily Medi-Cal and the In- Home Supportive Services Program) while adding others (mainly Child Welfare Services).

Another significant difference is that the 1995-96 proposal is not fiscally neutral. The budget estimates that there would be a net shift of $241 million in costs from the state to the counties. In recognition of this, the Governor proposes legislation to provide the counties with relief from state mandates in the General Assistance, indigent and public health, and mental health programs. Details of these proposals have not been presented by the administration.

We discuss the realignment proposal in more detail in our companion volume, The 1995-96 Budget: Perspectives and Issues.

Elimination of Medi-Cal Optional Benefits

The budget assumes that the Legislature will enact legislation to eliminate 9 of the 28 optional service categories in the Medi-Cal Program, for a General Fund savings of $156 million in the program in 1995-96. These savings would be partially offset by additional costs of $13 million in the Depart ment of Developmental Services in order to maintain these services for regional center clients.

The services that would be eliminated are adult dental, nonemergency transportation, medical supplies (excluding incontinence), speech and audiology, psychology, acupuncture, podiatry, chiropractic, and independent rehabilitation centers. The budget proposes to continue these services for children under age 21, persons in long-term care facilities, and developmentally disabled clients.

AFDC Welfare Reform Proposals

The Governor proposes legislation to implement the components of his 1994-95 AFDC welfare reform proposal that were not adopted:

SSI/SSP Proposals

The budget proposes legislation to reduce SSI/SSP grants for individuals by 8 percent (General Fund savings of $354 million) and to reduce the grants for couples by 10 percent (General Fund savings of $80 million). The amount of the grant reduction for couples is derived by setting the grant for aged and disabled couples at an amount equal to 1.75 times the grant for individuals. In addition to state legislation, implementation of this proposal will require federal legislation to eliminate or waive the current federal maintenance of effort requirement for California's SSI/SSP grant levels.

The budget also assumes federal legislation to eliminate drug and alcohol abuse as qualifying disabilities for SSI/SSP, for a General Fund savings of $25 million in grants and $27 million in Medi- Cal benefits.

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