Legislative Analyst's Office
February 22, 1995

Health and Social Services Overview

Major Issues

• Over $1 Billion in Proposed State Savings Depends on Federal Action. The budget proposes numerous changes in the health and social services area that depend on enactment of federal legislation ($1 billion in General Fund savings) or federal waiver of regulations ($254 million in General Fund savings). To the extent these actions are not taken at the federal level, there will be a budgetary hole in these programs. (See page C-14.)
• Budget Proposes to Realign State-County Responsibilities. The budget proposes to increase the county share of cost for various social services programs, thereby shifting $1.9 billion in spending from the state General Fund to the counties. This would be accompanied by a shift of $1.6 billion in state resources to the counties. In order to compensate counties for the net cost of $241 million, the Governor proposes legislation to provide the counties with relief from state mandates in the General Assistance, mental health, and indigent and public health programs. (See page C-15 and our companion volume, The 1995-96 Budget: Perspectives and Issues.)
• Proposal to Eliminate Medi-Cal Optional Benefits Has Fiscal and Program Implications. The budget proposal to eliminate nine optional benefits is estimated to result in net General Fund savings of $143 million in 1995-96, but could place additional fiscal burdens on county indigent health programs. We recommend that if the Legislature chooses to reduce benefits, it consider an approach based on prioritizing treatments or diagnoses rather than eliminating entire categories of benefits. Such an approach would reduce cost-shifting and better target the service reductions. (See page C-46.)
• Federal Decision Jeopardizes State Savings and County Revenues. A recent federal decision calls into question $400 million in state savings and $2 billion in potential county revenues from the federal government. The Department of Health Services is in the process of negotiating with the federal administration regarding its decision to deny claims submitted by the counties for reimbursement of administrative costs associated with the Medi-Cal Program. (See page C- 49.)
• Budget Proposes to Expand Health Services for Children. The budget proposes to establish a program that would provide outpatient care to children from birth through age five who are in families with incomes from 133 percent to 200 percent of the poverty level, at a General Fund cost of $56 million in 1995-96. We raise a number of questions concerning this proposal in our analysis of public health programs. (See page C-70.)
• Budget Proposes Major AFDC Changes. One of the Governor's stated reasons for proposing to reduce Aid to Families with Dependent Children (AFDC) grants and place a time limit on their availability is to make work an attractive alternative to the AFDC Program. We conclude that some families will be able to compensate for the grant reductions through work. Other families, however, probably will not be able to fully offset the grant reductions due to low levels of education and employment experience, as well as a potential lack of job opportunities. (See page C-106.)
• Budget Proposes SSI/SSP Grant Reductions and Eligibility Changes. The budget proposes to reduce SSI/SSP grants by 8 percent for individuals and 10 percent for couples (General Fund savings of $429 million in 1995-96). The budget also proposes to eliminate drug and alcohol addiction as a qualifying disability (General Fund savings of $52 million in 1995-96). Both of these proposals require federal legislation. (See page C-127.)

Overview

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:

• Shifting some of the state's costs of certain welfare programs to the counties, partially funded by a transfer of revenues to the counties and county savings from state assumption of a higher share of trial court costs.
• Shifting some of the state's costs of certain programs for refugees and undocumented persons to the federal government.
• Reducing grants provided under the Aid to Families with Dependent Children (AFDC) Program and the Supplemental Security Income/State Supplementary Program (SSI/SSP).
• Eliminating certain Medi-Cal benefits.

  Figure 1 shows that General Fund expenditures for health and social services programs are relatively flat between 1988-89 and 1995-96, increasing by $76 million, or less than 1 percent. General Fund expenditures increased significantly until 1991-92, when realignment legislation shifted $2 billion of health and social services program costs from the General Fund to the Local Revenue Fund, which is supported through state sales taxes and vehicle license fees. This shift in funding accounts for the significant increase in special funds starting in 1991-92, as shown in Figure 1. General Fund spending declined in 1992-93, due to various program reductions (the largest being welfare grant reductions). The budget proposes further significant General Fund reductions in 1995-96, partly offset by a sharp increase in special funds expenditures.

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:

• Medi-Cal services to undocumented immigrants.
• Medi-Cal, AFDC, and SSI/SSP services provided to refugees during the first 36 months of residence.
• Administration of SSP cases in the SSI/SSP Program.

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

• Eliminate nine optional Medi-Cal benefits (net state savings of $143 million in 1995-96, after accounting for offsetting costs to maintain these benefits for developmentally disabled persons served by the regional centers). Most of the savings would result from elimination of adult dental services.
• Eliminate the state-only Medi-Cal program for prenatal care for undocumented persons (state savings of $79 million in 1995-96).
• Implement grant reductions in the AFDC and SSI/SSP programs (net state savings of $254 million for the AFDC proposals and $429 million for the SSI/SSP proposals).
• Deny Medi-Cal and AFDC benefits to sponsored aliens for five years ($62 million state savings).
• Deny SSI/SSP benefits for drug- and alcohol-related disabilities ($52 million state savings).

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

• Expand coverage for children aged zero through five years in families with incomes up to 200 percent of the federal poverty level (General Fund cost of $56 million).
• Expand the Access for Infants and Mothers (AIM) Program --which provides health insurance to pregnant women and their infants--by increasing the eligibility limit from 250 percent of the poverty level to 300 percent and securing federal matching funds (General Fund cost of $14 million).

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:

• Across-the-Board Grant Reductions. The budget proposes a 7.7 percent reduction in the AFDC maximum grant levels and an additional 15 percent reduction for families that have an able-bodied adult and are on aid more than six months. The impact of the reductions would be primarily on nonworking recipients--those who currently get the maximum grants. The grant reduc tions for families, which require a waiver of federal regulations, would be partially offset by increases in federally funded food stamps.
• Teen Parent Provisions. The budget proposes to require parents under age 18, with some exceptions, to reside with their parents, legal guardian, or adult relative in order to receive AFDC.
• Time-Limited Aid. The budget proposes legislation to provide that AFDC grants for families with an able-bodied adult will be reduced by the amount of the grant associated with the adult, once the family has been on aid for more than two years cumulative time. These grant reductions would not affect the 1995-96 budget year but would be implemented beginning July 1, 1997.

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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