Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

In-Home Supportive Services

The In-Home Supportive Services (IHSS) program provides various services to eligible aged, blind, and disabled persons who are unable to remain safely in their own homes without such assistance. An individual is eligible for IHSS if he or she lives in his or her own home--or is capable of safely doing so if IHSS is provided--and meets specific criteria related to eligibility for the Supplemental Security Income/State Supplementary Program (SSI/SSP).

The IHSS program consists of two components: the Personal Care Services Program (PCSP) and the Residual IHSS program. Services provided in the PCSP are federally reimbursable under the Medicaid program. The PCSP limits eligibility to categorically eligible Medi-Cal recipients (California Work Opportunity and Responsibility to Kids [CalWORKs] and SSI/SSP recipients) who satisfy a "disabling condition" requirement. Personal care services include activities such as: (1) assisting with the administration of medications; and (2) providing needed assistance with basic personal hygiene, eating, grooming, and toileting. The following cases are excluded from the PCSP and, therefore, receive services through the Residual (state-only funded) IHSS program: cases with domestic services only, protective supervision tasks, spousal providers, parent providers of minor children, "income eligibles" (generally recipients with income above a specified threshold), "advance pay" recipients (eligible for payments prior to the provision of services), and recipients covered by third party insurance.

The budget proposes $1 billion from the General Fund for the IHSS program, which is an increase of 12 percent over estimated current-year expenditures. This spending growth is primarily attributable to increases in the caseload and the wages paid to providers.

Maximize Federal Funds Through Eligibility Changes

Recipients who (1) hire relative caregivers or (2) pay their providers in advance of receiving service are not eligible for federal funding and must be served in the state-only "residual" program. In order to maximize federal funds in the In-Home Supportive Services program without reducing services to recipients, we recommend (1) recipients be required to elect nonrelative caregivers and (2) the advance payment option be eliminated. These changes result in General Fund savings of approximately $35 million. (Reduce Item 5180-111-0001 by $35,000,000.)

General Fund Spending Has Nearly Quadrupled. From 1993-94 through 2001-02, IHSS has been the fastest growing social services program in terms of General Fund spending. During this time period, General Fund expenditures increased almost four-fold, rising from $232 million in 1993-94 to an estimated $903 million in 2001-02. This represents an average annual growth rate of about 19 percent. By comparison, General Fund spending in CalWORKs declined during this period and SSI/SSP spending increased at an average annual rate of 4 percent. For 2002-03, the budget proposes about $1 billion for IHSS, just less than the combined General Fund spending for Foster Care and Child Welfare Services. In-Home Supportive Services is now the third largest social services program, behind only SSI/SSP ($3 billion) and CalWORKs ($2.2 billion). Figure 1 shows General Fund spending from 1993-94 through 2002-03.

Why Has Spending Grown So Rapidly? Total spending growth from 1993-94 through 2001-02 was about $670 million, mostly attributable to caseload growth, increases in the hours of service per client, and higher wages for providers. Specifically, caseload and service hour growth, in combination with inflation, account for about $220 million of the increase. Higher wages for providers account for an additional $335 million of program cost growth. (This $335 million results from both minimum wage increases--about $205 million--and from discretionary wage increases for providers--about $130 million.) We cannot specifically identify the cause of the remaining increase, but some of it is due to the impact of court cases.

Controlling Costs By Increasing Federal Eligibility. As described above, the IHSS program is really two programs--the PCSP, which is 50 percent federally funded through the Medicaid program, and the residual program, which is funded exclusively with state and county funds. For 2002-03, about 210,000 recipients (75 percent) are in PCSP and about 75,000 recipients (25 percent) are in the residual program. Drawing down federal Medicaid funds in the PCSP saves about $2,000 per case, per year, compared to the residual program where no such federal funding is available.

Relative Caregivers and Advance Payment Cases Not Federally Eligible. Under current law, IHSS cases in which recipients elect to have a relative act as their caregiver are not eligible for federal funding and must be served in the state-only residual program. There are about 14,500 such cases in which the recipient's caregiver is a relative, usually a spouse or parent. Current law allows certain severely disabled impaired recipients to receive payment before IHSS services are rendered. There are about 575 such "advance payment" cases, and, like cases with relative caregivers, they are not federally eligible.

Analyst's Recommendation. Requiring all IHSS recipients to elect nonrelative caregivers and eliminating the advance payment option would make about 15,000 IHSS cases eligible for federal funding, resulting in General Fund savings of about $30 million and county savings of about $18 million. Accordingly, we recommend enactment of legislation to require (1) all IHSS recipients to elect nonrelative caregivers and (2) to eliminate the advance payment option. This recommendation results in substantial savings without reducing services to IHSS recipients. It would require, however, that about 14,500 relative caregivers seek other part-time employment in order to maintain their household's income.

Governor Proposes to Suspend State Participation in Wage Increase

By suspending the In-Home Supportive Services revenue "trigger" for state participation in higher wages for certain providers, the Governor's budget achieves a General Fund cost avoidance of $26.7 million.

State Participation in Wage Increases. Chapter 108, Statutes of 2000 (AB 2876, Aroner), authorizes the state to pay 65 percent of the nonfederal cost of a series of wage increases for IHSS providers working in counties that have established "public authorities." The wage increases began with $1.75 per hour in 2000-01, potentially to be followed by additional increases of $1 per year, up to a maximum wage of $11.50 per hour. We note that state participation in wage increases after 2000-01 is contingent upon General Fund revenue growth exceeding a 5 percent threshold. Chapter 108 also authorizes state participation in health benefits worth up to 60 cents per hour worked.

2001-02: Wages Increased Absent Trigger. For 2001-02, revenue growth was below 5 percent. Thus, under the revenue trigger mechanism created by Chapter 108, state participation in a $1 per hour wage increase for public authority workers was not required. Nevertheless, state participation in a $1 wage increase to $8.50 per hour was provided, at a General Fund cost of approximately $23 million.

2002-03: Governor Proposes Suspending Trigger Mechanism. The Governor's budget estimates that an economic recovery beginning in the spring of 2002 will result in revenue growth (excluding transfers) of about 12 percent between 2001-02 and 2002-03. Because revenue growth exceeds the 5 percent threshold, under current law, state participation in a $1 per hour wage increase would be triggered. Given the state's difficult fiscal situation, the Governor proposes to suspend the application of this trigger. This results in a General Fund cost avoidance of $26.7 million in 2002-03.

We note that the decision to override the trigger in 2001-02 means state participation in IHSS wages is already $1 higher than the level contemplated in Chapter 108. Thus, suspending the wage increase in 2002-03 would put wages at a level equal to what they would have been absent last year's budget change.

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