Health and Social Services

Healthy Families Program

The Healthy Families Program is a new state program to expand health insurance coverage for low-income children.

New Program to Expand Health Coverage for Children

Federal Legislation Provides New Funding

The federal Balanced Budget Act of 1997 created a new Children's Health Insurance Program (CHIP). This new program provides federal funds to states on a matching basis to finance health care coverage for children (through age 18) in families with incomes that generally are less than 200 percent of the federal poverty level (FPL)--currently $32,100 for a family of four--but are too high to qualify for Medicaid (Medi-Cal in California). The federal legislation appropriates a total of $20.3 billion nationwide for the first five years of the program (beginning October 1997) and authorizes an additional $19.4 billion for the subsequent five-year period. Each state is entitled to an allotment of CHIP funds based primarily on its share of the national total of uninsured children in families with incomes under 200 percent of FPL. California's initial allotment for the federal fiscal year ending September 30, 1998 (federal fiscal year 1998) is $854.9 million, with similar amounts available in the subsequent two years.

Enhanced Federal Match Rate. For California, the federal government will pay about two-thirds of qualifying program costs compared with a federal share of about half in the Medi-Cal Program. In order to use all of the federal funds allotted to the state, California would have to spend an annual total of about $1.3 billion, including $443 million of state or local matching funds. Unused federal funds can be carried over for up to three years.

Choice of Separate Insurance Program or Medicaid Expansion. To be eligible for the new federal funds, states can choose to expand their Medicaid programs to cover additional children at higher income levels, or they can establish a separate insurance program. The separate insurance programs may offer a more limited benefit package than Medicaid, and may require families to pay a portion of the cost of coverage. States also can use a combination of the two approaches. States receive funding at the enhanced federal match rate for the additional children that they cover through either approach.

California's Healthy Families Program Enacted

Soon after the federal legislation was approved, the Legislature enacted and the Governor signed legislation to implement the new federal program in California known as the "Healthy Families Program." The legislation creates a new insurance program for children, separate from Medi-Cal, but it also incorporates a number of enhancements of Medi-Cal coverage for children. The legislation encompassed the following package of four bills:

Chapter 623, Statutes of 1997 (AB 1126, Villaraigosa) Establishes the Healthy Families Insurance Program. The new insurance program, which is separate from Medi-Cal, will help low-income families purchase health coverage for their children starting July 1, 1998. It is administered by the Managed Risk Medical Insurance Board (MRMIB), which has been responsible for operating the state's health insurance purchasing pool for small businesses and several smaller subsidized health insurance programs. The new insurance program has the following major features:

Chapters 624 and 626, Statutes of 1997 (SB 903, Lee and AB 217, Figueroa) Broaden and Simplify Medi-Cal Eligibility for Poor Children.Children ages 14 through 18 in families up to 100 percent of FPL will be eligible for coverage now, rather than being phased in a year at a time as under prior law. These measures also generally eliminate asset limits for Medi-Cal coverage of children, require the Department of Health Services (DHS) to allow enrollment of children through a simplified mail-in form, and allow one month of continuing eligibility to enable children losing Medi-Cal time to enroll in Healthy Families.

Chapter 625, Statutes of 1997 (AB 1572, Villaraigosa) Provided Initial Funding. This measure appropriated $4.9 million ($1.8 million General Fund, $3.1 million federal funds) to MRMIB and DHS for start-up costs and outreach efforts for the Healthy Families Program.

The Budget Request

Governor's Budget Proposes Net Spending Total of $197 million in 1998-99

The 1998-99 budget request for Healthy Families includes funding for both MRMIB and DHS as shown in Figure 7 (see next page). The total net funding request is $197.2 million, consisting of $62.6 million from the General Fund and $134.6 million of federal funds. About half of total spending ($97.9 million) is for health plan payments and administration at MRMIB, and about 40 percent of spending is in the Medi-Cal Program (net of offsetting savings). The Healthy Families budget also includes a total of $20.7 million of spending in existing health programs for children who will enroll in Healthy Families. By including these existing programs among Healthy Families benefits, the state will be able to obtain federal matching funds that will offset $14.6 million of state or local funding.
Figure 7
Healthy Families Program Funding

Governor's Budget Proposal


(In Thousands)





New Programs/Activities
Children's Health Insurance Program
Managed Risk Medical Insurance Board (MRMIB)
Administration $767 $1,491 $2,258
Health plan payments 32,488 63,150 95,638
Totals (MRMIB) $33,255 $64,641 $97,896
Medi-Cal Program Expansion:
Department of Health Services (DHS)


$497 $1,152 $1,649
Eligibility expansions 21,984 42,409 64,393
Outreach 4,997 16,003 21,000
Offsetting savingsa -4,208 -4,208 -8,416
Totals (DHS/Medi-Cal) $23,270 $55,356 $78,626
Totals (new programs/activities) $56,525 $119,997 $176,522
Existing Programs
Access for Infants and Mothers--MRMIB $1,660 $3,228 $4,888
Child Health and Disability Prevention--DHS 2,883 5,605 8,488
California Children's Services--DHS 1,497 5,806 7,303
Totals (existing programs) $6,040 $14,639 $20,679
Grand totals $62,565 $134,636 $197,201


aSavings consist of $4.6 million from using mail-in applications and $3.8 million of avoided costs for children in Healthy Families who incur large medical bills and would otherwise use Medi-Cal on a share-of-cost basis.
bThe Governor's Budget Summary (page 121) indicates total cost of $201 million, but omits savings ($3.8 million) from the shift of share-of-cost children from Medi-Cal to Healthy Families.

Analysis and Recommendations

$1.4 Billion of Federal Funds Will Roll Forward

Under the budget plan, about $1.4 billion of California's federal allocation through June 1999 will remain unspent and will roll forward into 1999-00. It is likely that most, if not all, of these funds will remain unspent.

The budget proposes to spend $135 million of federal funds for the Healthy Families Program in 1998-99. This will result in a rollover of about $1.4 billion of unspent federal allocations. (As indicated above, unspent federal funds can be carried over for three years.) One reason for the large rollover is that the budget estimates that enrollment at the end of 1998-99 will be only 40 percent of the eligible children. However, even at full enrollment, the administration estimates that the state would use only about $320 million of federal funds annually, which is about $500 million less than the state's current annual allotment. Consequently, under the administration's projections, the Healthy Families Program will not be able to spend most of the federal funding allotted to California.

One explanation for the discrepancy between the state's federal funds allotment and planned spending is the federal allotments are based on the total number of low-income uninsured children. Most of these uninsured children, however, are in families with incomes low enough to qualify for Medi-Cal, and therefore they are not eligible for the new federal program. Absent Congressional action to expand the use of these federal funds, it appears likely that the state will not be able to spend a significant portion of its allotments.

Federal Approval of Continuing Eligibility in Doubt

We withhold recommendation on $27 million ($9.2 million General Fund) requested in the Department of Health Services' Medi-Cal budget to provide one-month continuing eligibility for children, pending resolution of federal objections to this proposal.

The Medi-Cal budget request includes (in Item 4260-101-0001) a total of $27,034,000 ($9,183,500 General Fund) in 1998-99 and $2,253,000 ($769,000 General Fund) in the current year to provide one month of continuing Medi-Cal eligibility to children who otherwise would lose their eligibility for Medi-Cal without a share of cost, as required by SB 903. The purpose of providing continuing eligibility is to avoid gaps in coverage for children in families whose income rises above the limit for no-cost Medi-Cal coverage of the child. The additional month of Medi-Cal coverage would allow time for the family to enroll the child in the Healthy Families Program.

Transitional Coverage Available for Most Medi-Cal Children. The budget request proposes to provide one-month continuing coverage to all Medi-Cal children who are not in CalWORKs families (about 750,000 children). About two-thirds of the children covered by Medi-Cal are in CalWORKs families. CalWORKs families would not need the one-month continuing coverage because currently they are eligible for up to one year of "transitional" Medi-Cal coverage after their income increases above the CalWORKs limit due to employment, child support payments, or marriage.

About half of the children in non-CalWORKs families, however, are in the Medically Needy category and most (if not all) of them will be eligible for transitional Medi-Cal coverage as "Section 1931(b)" eligibles under the federal welfare reform law. (Please see our discussion of Section 1931(b) Medi-Cal eligibility in our analysis of the Medi-Cal Program.) Thus, the number of children who potentially might use the additional month of continuing coverage is about half the number assumed in the budget request. We estimate that providing one-month continuing coverage to this smaller number of children (at the regular federal match) would cost the General Fund $2.6 million less than the budget requests.

Federal Approval in Doubt. The requirements of SB 903 are contingent on the approval of federal matching funds. Such approval currently appears doubtful. Federal law authorizes states to provide up to 12 months of continuous eligibility to children when they enroll for Medicaid, or at their annual redetermination, with federal funding at the regular Medicaid matching rate (about 51 percent). The budget proposal, however, calls for extending children's Medi-Cal eligibility for one month after they have otherwise become ineligible, and assumes federal funding at the enhanced CHIP rate (about 66 percent). At this time, staff in the federal Health Care Financing Administration indicate that they doubt that the state's proposal for one-month continuing eligibility will be approved. Pending a final federal decision, we withhold recommendation on this request.

Requiring Children in the CCS Program to Enroll in The Healthy Families Program Would Result in Savings

We recommend enactment of legislation to require qualifying participants in the California Children's Services (CCS) Program to enroll in the Healthy Families Program in order to provide more comprehensive health care services to CCS children at a net General Fund and county savings of $6.2 million each in 1998-99 compared with the Governor's budget. (Reduce Item 4260-111-0001 by $9,118,000 and Increase Item 4280-101-0001 by $2,972,000.)

The California Children's Services (CCS) Program provides diagnostic and treatment services, medical case management, and medical and occupational therapy services to children under 21 years of age who have eligible medical conditions, such as severe genetic diseases, chronic health problems, or major traumatic injuries. The Medi-Cal Program pays for eligible CCS services for those children who are in Medi-Cal. Other costs attributed to the CCS Program are shared equally by the state General Fund and county funds.

Healthy Families Includes CCS Services. The Healthy Families Program includes CCS services as a benefit. Therefore, for those CCS children who also are enrolled in Healthy Families, federal funds will cover two-thirds of the cost of their CCS services, which otherwise would be borne entirely by the state and the counties. Currently, however, there is no requirement that CCS children enroll in Healthy Families if they are eligible.

The budget assumes that CCS-eligible families will decide to enroll in Healthy Families at about the same pace as other families, so that about one-third of the eligible CCS children would be enrolled in Healthy Families by the end of 1998-99. The budget also estimates that CCS children enrolled in Healthy Families will receive a total of $8.8 million of CCS services in 1998-99. As a covered benefit, about two-thirds of this cost will be paid by federal funds, resulting in a state General Fund savings of $2.9 million (and equivalent county savings).

Enrollment of Eligible CCS Children in Healthy Families Would Result in Net Savings. Enrolling all eligible CCS children in Healthy Families would provide more comprehensive health coverage to CCS children while also reducing state and county costs. Healthy Families provides a full scope of health care services, plus dental and vision care, whereas the CCS Program only covers services that address a child's CCS-eligible condition. Enactment of legislation requiring families that participate in CCS to also enroll in Healthy Families would ensure that all eligible CCS children have full health coverage without losing any existing CCS benefits. It also would allow the CCS Program to draw down additional federal funds at the two-thirds match rate for the Healthy Families Program.

We estimate that full enrollment of eligible CCS children in Healthy Families would result in a net General Fund savings of $6.2 million in 1998-99, assuming that the sign-up requirement is effective starting October 1998. (General Fund CCS costs would decrease by $9.1 million, but increased General Fund costs for the Healthy Families Program would offset almost $3 million of these savings.) Counties would experience a similar net savings in their share of CCS costs. Our savings estimate assumes that the families of CCS children would pay the Healthy Families monthly premium. Waiving premiums for families of CCS children would reduce the net state savings to about $6 million in 1998-99.

Including Regional Center Services As a Healthy Families Benefit Should Be Explored

We recommend that the Department of Health Services, the Department of Developmental Services and the Managed Risk Medical Insurance Board report during the budget hearings on (1) the feasibility of including regional center services as a Healthy Families benefit and (2) the potential state savings that would result.

The Governor's budget proposes $558 million from the General Fund in the budget of the Department of Developmental Services (DDS) to support the regional centers, which provide community-based services to developmentally disabled clients. Many of these clients are children, some of whom are not eligible for Medi-Cal, but whose family incomes would qualify them for the Healthy Families Program.

The regional centers provide a wide range of services to enable clients to live in the community. The federal CHIP legislation authorizes states to include "home and community-based health care services and related supportive services" as benefits under their children's health insurance plans.

The Healthy Families Program currently does not include regional center services as a covered benefit. We believe, however, that it may be feasible to include many of these services in the package of benefits provided by the Healthy Families Program. Requiring enrollment in Healthy Families for eligible children who use regional center services would ensure broad health coverage for these children and would enable the state to maximize General Fund savings by using federal funds to offset a portion of the costs. Accordingly, we recommend that DHS, DDS, and MRMIB report during the budget hearings on (1) the feasibility of including regional center services as a Healthy Families benefit and (2) the potential state savings that would result.


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