• California's Health Care Safety Net
  • What is the Safety Net and Who Uses It?
    • The Safety Net Defined
    • The Uninsured and the Safety Net
    • Demographics of the Safety Net Users
  • How Much Does the Safety Net Cost?
    • How Has the Safety Net Been Funded?
    • Major Shifts in Safety Net Funding
    • Recent State and County Actions to Reduce Indigent Health Care Costs
    • Issues for the Legislature's Consideration

California's Health Care Safety Net

What is the Safety Net and Who Uses It?

The Safety Net Defined

California's health care safety net provides health-related services to persons who lack health insurance or other coverage, such as Medi-Cal, and cannot pay for such services. These services are provided by the counties, which are ultimately responsible for serving those with no other means of public or private support, as required by Section 17000 of the Welfare and Institutions Code. The safety net provides inpatient hospital and outpatient services.

The Uninsured and the Safety Net

The University of California Los Angeles Center for Health Policy Research has examined recent trends in health insurance in California and found that the percentage of persons without insurance (those most likely to use the safety net) varies significantly across the state, as shown in Figure 8 (see next page). The report found that Los Angeles County's uninsured rate of nearly 31 percent is both the highest in the state and the 30 largest metropolitan areas nationwide. Four other regions in the state--Orange, Sonoma, San Diego, and Fresno-Kern Counties--have uninsured rates in excess of 20 percent.

Figure 8 Percentage of Persons Uninsured, by Major Region 1992-93
		Insured
Region	Uninsured	Job-Related insurance	Medicaid Coverage	Other a
Los Angeles County	30.9%	45.3%	13.8%	10.0%
Orange County	24.3	59.4	6.6	9.7
Sonoma County	24.0	52.6	9.4	14.0
San Diego County	21.9	48.9	14.5	14.7
Fresno-Kern Counties	21.0	45.2	22.2	11.6
Riverside-San Bernardino Counties	19.6	58.7	13.0	8.7
Santa Barbara-Ventura Counties	17.0	60.3	13.1	9.6
Sacramento areab	15.6	59.7	12.3	12.4
San Francisco areac	15.2	62.7	7.6	14.5
Santa Clara County	14.6	68.7	5.8	10.9
a Other insurance, including Medicare.
b Includes Sacramento, Yolo, El Dorado, Placer, San Joaquin, and Stanislaus Counties.
c Includes San Francisco, San Mateo, Marin, Alameda, and Contra Costa Counties.
Source: UCLA Center for Health Policy Research analysis of 1992 and 1993 Current Population Survey.

The report further indicates that the majority of uninsured individuals are employed, typically in small firms. Individuals employed full-time in small firms (less than 25 workers) are less likely to receive health insurance compared to employees in small firms in the rest of the nation--36 percent in California versus 42 percent nationally. Many of the smaller firms are involved in the agricultural, retail, and service sectors of the economy.

Demographics of the Safety Net Users

According to the Department of Health Services (DHS), the counties served roughly 1.7 million medically indigent persons in 1992-93 (the latest year for which data are available). The data show that a majority of those served: (1) received outpatient services (84 percent), (2) received services in Los Angeles County (60 percent), and (3) were identified as Hispanic (60 percent). Those receiving care are about equally divided among three age groups: 31 percent are below the age of 21, 34 percent are between the ages of 21 and 34, and 35 percent are age 35 or older.

How Much Does the Safety Net Cost?

Currently, the data on county indigent health expenditures are not complete. Thus, it is not possible to provide a precise estimate of these expenditures. Based on the data that are available, however, we estimate that the costs are in the range of $2 billion to $2.5 billion annually. This consists of funds from a variety of sources, including: (1) state funds provided through the 1991-92 realignment legislation, Proposition 99, and the General Fund; (2) federal funds provided to "disproportionate share" hospitals; and (3) county general funds. We discuss these funding sources below.

How Has the Safety Net Been Funded?

Funding for the safety net has been provided through several different sources over the years. Below, we describe the major funding sources:

• County Health Services (AB 8 Program).This state program was established in 1979 in the aftermath of Proposition 13. The AB 8 Program provided counties block grants to support public health services and inpatient/outpatient care for low-income persons. In 1991, realignment legislation replaced state funding from the County Health Services program with funds generated from an increase in vehicle license fees (VLF) and sales taxes.
• Medically Indigent Services Program (MISP). This state program provided funds to serve the medically indigent adult (MIA) population for larger counties. The state established MISP along with the County Medical Services Program (CMSP) in 1983, when it transferred responsibility for the (MIA) population from the state's Medi-Cal program back to the counties. Realignment in 1991 repealed the MISP and replaced it with funds generated from an increase in vehicle license fees and sales taxes.
• County Medical Services Program. This state program provides funds to smaller counties that choose to contract with the state to administer their MIA programs. The realignment legislation in 1991 transferred responsibility for the CMSP from the state to the counties, significantly reducing state General Fund support and replacing it with revenues generated from an increase in VLF and sales taxes.
• State Legalization Impact Assistance Grants (SLIAG). The federally funded SLIAG reimbursed states for the expenses incurred in assisting newly legalized persons pursuant to the Immigration Reform and Control Act of 1986. A portion of SLIAG funds was allocated to counties for indigent health services from 1988-89 through 1994-95.
• Proposition 99. The Tobacco Tax and Health Protection Act of 1988 (Proposition 99) allocates a portion of tobacco tax revenues for county health services. In 1989, the Legislature established the California Healthcare for Indigents Program (CHIP) and the Rural Health Services (RHS) Program, which allocate Proposition 99 funds to expand county indigent health services.
• Realignment. In 1991, the state transferred much of its fiscal responsibility for health services programs to the counties as part of a "realignment" of state and local programs. Specifically, the state eliminated funding for the AB 8 Program and MISP, and significantly reduced its support for CMSP. Realignment legislation replaced those funding sources for counties with revenues derived from an increase in the state sales tax and the VLF, provided counties continued to spend their AB 8 match amounts and dedicate their VLF funds for health services.
• County General Funds. In order to receive their realignment funds and full share of Proposition 99 revenues, counties are required to maintain a minimum level of county spending on indigent health care, as specified in statute. Some counties, however, spend more on these services than is statutorily required.
• Disproportionate Share Hospital (DSH) Supplemental Payment Programs. California has established two programs to provide supplemental Medi-Cal payments to certain hospitals that provide services to disproportionate numbers of Medi-Cal and other low-income patients. These programs were established to assist safety net hospitals in meeting the uncompensated care costs associated with the provision of medical services to uninsured and underinsured patients.
• The SB 855 Program. Chapter 279, Statutes of 1991 (SB 855, Robbins) established the SB 855 Program. The program provides supplemental payments to hospitals that serve disproportionate numbers of low-income individuals. Under the program, publicentities that operate disproportionate share hospitals--such as counties, special districts, and the University of California system--are required to transfer funds to the state by means of intergovernmental transfers. These funds are combined with matching federal funds and redistributed as supplemental payments to alleligible disproportionate share hospitals, including private hospitals. A hospital may receive DSH payments if its Medi-Cal inpatient utilization rate exceeds an established threshold or it uses a minimum percentage of its revenues to provide health care to Medi-Cal and uninsured patients. Total supplemental payments--intergovernmental transfers (county funds) plus matching federal funds--have grown from $1.6 billion in 1991-92 to $2.2 billion in 1994-95 and are capped at that level by federal law. An estimate for 1995-96 was not available at the time this analysis was prepared.
• The SB 1255 Program. The California Medical Assistance Commission (CMAC) administers the SB 1255 Program, established by Ch 996/89 (SB 1255, Robbins). The program provides supplemental payments to certain eligible DSH hospitals--generally hospitals that (1) are licensed to provide emergency medical services and (2) contract with CMAC to serve Medi-Cal patients under the Selective Provider Contracting Program. Like the SB 855 Program, intergovernmental transfers are made by public entities, but these transfers are voluntary in the SB 1255 Program. These funds are combined with matching federal funds and redistributed by the CMAC as supplemental payments to eligible hospitals (including private hospitals) that demonstrate a need for additional funds.

Major Shifts in Safety Net Funding

Several shifts in funding have occurred within the state's health care safety net over the past five years. As discussed below, the difficulty that many counties are experiencing in providing indigent health care is generally the result of a combination of factors, including the shortfall in realignment revenues provided to counties, a declining share of federal DSH funds allocated to public hospitals, and a reduction in Proposition 99 revenues appropriated for indigent health care.

Realignment Revenues Lower Than Projected. The 1991 realignment legislation fundamentally changed the state and county fiscal relationship. Although intended to be revenue neutral, economic factors caused realignment revenues to be lower than expected for county indigent health programs. As Figure 9 (see next page) shows, the level of realignment revenues initially anticipated for 1991-1992 was not achieved until 1994-95.

SB 855 Funding for Public Hospitals Declining. Figure 10 (see next page) shows this program's net benefit (supplemental payments less intergovernmental transfers) to public and private hospitals for 1992-1993 through 1994-95. The figure shows that the net benefit received by public hospitals decreased from $692 million (77 percent of the total) to $483.1 million (57 percent) between 1992-93 and 1994-95. This was a decline of $208.9 million during this period.

Figure 9 Realignment Funding for Indigent Health Services 1991-92 Through 1995-96
(In Millions)
Service	1991-92	1992-93	1993-94	1994-95	1995-96
Indigent health funding a
Expected	$652.1	--	--	--	--
Actual	577.4	$614.0	$614.3	$653.4	$732.2
Difference	$74.7
a Indigent health portion estimated as 59.3 percent of total realignment health portion, plus entire realignment portion of County Medical Services Program counties.

Figure 10 Fiscal Impact of SB 855 Program Net Benefit to Public and Private Hospitals a 1992-93 Through 1994-95
(In Millions)
		1992-93	1993-94	1994-95
Public hospitals		$692.0	$624.0	$483.1
Private hospitals		201.6	293.3	362.0
Totals		$893.5	$917.5	$845.1
a Net benefit is the combination of federal funds and intergovernmental transfers less (1) those transfers and (2) state "administrative fees." Source: Department of Health Services.

SB 1255 Funding for Public Hospitals Increasing. While SB 855 funds have been declining, SB 1255 funds have been increasing, as shown in Figure 11. The figure shows that the net benefit to county hospitals increased by about $130 million between 1992-93 and 1994-95, primarily for L.A. County hospitals.

Figure 11 Fiscal Impact of SB 1255 Program Net Benefit to Public and Private Hospitals 1992-93 Through 1994-95
(In Millions)
	1992-93	1993-94	1994-95
L.A. County hospitals	$115.0	$115.0	$209.0
Other county hospitals	33.0	32.4	71.4
County subtotals	($148.0)	($147.4)	($280.4)
L.A. community hospitals	$7.7	$9.6	$12.0
Children's hospitals	8.8	10.7	21.5
Other community hospitals	2.9	3.5	9.4
Community subtotals	($19.4)	($23.8)	($42.9)
District hospitals	$0.5	--	$0.8
University of California hospitals	9.0	$9.5	20.3
Totals	$176.9	$180.6	$344.3
Source: California Medical Assistance Commission.

Federal Cap Placed on DSH Funds.The federal Omnibus Budget Reconciliation Act of 1993 placed a cap on how much each hospital can be reimbursed under the DSH Program. Basically, hospitals cannot receive more than 100 percent of their uncompensated care costs through DSH supplemental payments, beginning in 1995-96. Federal regulations to implement these provisions have not yet been issued. We note that the DHS has submitted a state plan amendment to the federal government proposing a method for calculating uncompensated care costs for hospitals in California, but no decision has been made on this proposal. Because the regulations have not been adopted and hospital-specific data are not yet available, an estimate of the impact of the hospital caps on California is not available at this time; but the department anticipates that the caps will result in a reduction in federal funds.

Proposition 99 Revenues Declining. The decline in tobacco consumption has led to lower tobacco tax revenues for Proposition 99 programs, including county health services, as shown in Figure 12 (see next page). Between 1991-92 and 1995-96, the amount of tobacco tax revenues counties received is expected to fall from $241.6 million to $177.8 million--a 26 percent decline.

Figure 12 Proposition 99 Funding For County Indigent Health Services 1991-92 Through 1995-96
(In Millions)
Program	1991-92	1992-93	1993-94	1994-95	1995-96
California Healthcare for Indigents Program	$227.7	$196.0	$192.5	$162.9	$163.0
Rural Health Services	4.5	3.5	3.4	2.8	2.8
County Medical Services Program	9.4	9.6	12.0	12.0	12.0
Totals	$241.6	$209.1	$207.9	$177.7	$177.8

Federal Funds for Los Angeles County. As a result of its fiscal problems, Los Angeles County negotiated agreements with the federal government and the state to receive $514 million in federal funds for 1995-96. Most of these funds will flow through the SB 1255 Program:

• The county and the CMAC negotiated the early receipt of federal funds through the SB 1255 Program for 1995-96. Normally these negotiations would have occurred later in the fiscal year. The county will transfer $170 million to match an equal amount in new federal funds. Of the $340 million, Los Angeles County will receive $320 million in SB 1255 payments. The net benefit to the county, therefore, will be $150 million.
• Contingent upon approval of a federal Medicaid waiver, the county will transfer an additional $182 million to match an equal amount in federal funds, thereby receiving an additional $364 million in SB 1255 payments. The net benefit to the county, therefore, will be $182 million.
• In addition, the county will receive another $182 million in federal funds through various programs, pursuant to the waiver.

Recent State and County Actions to Reduce Indigent Health Care Costs

The state and counties have taken several actions to reduce indigent health care costs. These include the establishment of new health insurance programs and county efforts to contract with other entities to provide services.

Lowering Health Insurance Costs for Small Businesses.The state Managed Risk Medical Insurance Board (MRMIB) administers the Health Insurance Plan of California (HIPC), which serves as a purchasing pool to leverage lower health insurance rates for small businesses with 3 to 50 employees. By covering the costs of health insurance to small business, it is hoped that those businesses that do not provide insurance will be able to do so and those businesses that currently provide insurance will continue to do so.

By negotiating with health insurance companies, the HIPC helped reduce premium rates by an average of 6.3 percent in 1994-95, and expects to lower them by an additional 5.1 percent in 1995-96. Since its inception in 1993, the HIPC has enrolled over 5,000 small businesses and 97,000 people through 25 different private health plans. Approximately 20 percent of those small businesses enrolled in HIPC did not previously offer health insurance to their employees.

Subsidizing Health Insurance Premiums for Individuals.The MRMIB also secures health insurance for individuals through the California Major Risk Medical Insurance Program (MRMIP) and the Access for Infants and Mothers (AIM) Program. The MRMIP has helped secure health insurance for over 19,000 California residents ineligible for Medicare and unable to obtain coverage in the open market because of pre-existing medical conditions. The program supplements the premiums paid by subscribers (to seven participating health plans) for comprehensive inpatient and outpatient health care services. The AIM Program contracts with private health insurance plans to provide coverage for low-income women seeking pregnancy-related and neonatal medical care. The program has enrolled over 4,500 women and 11,000 infants through eight private health plans. Both the MRMIP and AIM Program are funded with tobacco tax (Proposition 99) revenues.

Contracting Services. Some counties, such as San Diego and Orange, do not operate their own hospitals or primary care clinics, but contract with the University of California and with nonprofit, community-based groups to provide their health services. San Diego County has contracts with 21 nonprofit community-based groups to operate primary care clinics. The clinics reportedly keep their costs down by private fund raising, using volunteers, and paying lower salaries on average.

Issues for the Legislature's Consideration

In our analyses of the Public Health programs and the Managed Risk Medical Insurance Board, we make separate findings and recommendations related to some of the issues discussed above.

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