LAO 2003-04 Budget Analysis: Health and Social Services

Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill


General Fund expenditures for health and social services programs are proposed to decrease by 34 percent in the budget year due primarily to the Governor's realignment plan. However, total state spending (General Fund plus special funds) for the budget year remains at about the current-year level as the cost to fund the realigned health and social services programs is shifted to special funds.

Beyond the realignment proposal, a variety of caseload and cost increases are largely offset by suspension of cost-of-living adjustments (COLAs) and grant reductions in social services programs and various specific health program reductions.

Expenditure Proposal and Trends

Budget Year. The budget proposes General Fund expenditures of $15.1 billion for health and social services programs in 2003-04, which is 24 percent of total proposed General Fund expenditures. Figure 1 (see next page) shows health and social services spending from 1996-97 through 2003-04. The health and social services share of the budget as proposed would decline dramatically in the budget year. The budget proposal represents a General Fund decrease of $7.9 billion, or 34 percent, below the revised estimated expenditures in the current year. As we discuss below, this is due primarily to realignment of program funding responsibility from the state to the counties rather than to proposed changes in the level of program activity. Absent realignment, General Fund expenditures for these programs would have increased 1.1 percent.

The Governor's spending plan assumes a net increase in special funds expenditures of $7.5 billion in the budget year. This consists of an increase of $8 billion to fund realignment, partly offset by a decline in tobacco-related litigation settlement funds that had been set aside for the support of health programs. Because the 2002-03 Budget Act relied upon the sale of this stream of state revenue for a one-time gain in state revenues of $4.5 billion, the amount of tobacco settlement funds available for the support of health programs would decrease. The Governor's 2003-04 budget plan assumes the amount of revenues available (previously about $546 million) will decline to $220 million in the budget year and thereafter be unavailable for the support of health programs.

Historical Trends. General Fund support for health and social services programs has been growing steadily since 1996-97. This growth trend would largely be negated by the major reduction in General Fund spending for these programs proposed for 2003-04. Consequently, General Fund expenditures (current dollars) for health and social services programs in 2003-04 would be at about the same level as in 1996-97, as Figure 1 shows.

On a constant dollar basis, General Fund expenditures are estimated to decline by 14 percent during this period, an average annual decrease of 2.1 percent, again due almost entirely to the realignment proposal.

Although General Fund spending would decline sharply in 2003-04, total state spending actually increases in the budget year as the cost to fund the realigned health and social services programs is shifted to special funds. Total state spending is projected to increase by about $9.2 billion, or about 51 percent, from 1996-97 through 2003-04. This represents an average annual increase of 6.1 percent. When combined state spending is adjusted for inflation, support for health and social services programs in constant dollars grows by almost 28 percent between 1996-97 and 2003-04. That represents an average annual growth rate of 3.5 percent.

Caseload Trends

Figures 2 and 3 (see next page) illustrate the budget's projected caseload trends for the largest health and social services programs. Figure 2 shows Medi-Cal caseload trends over the last decade, divided into three groups: families and children (primarily recipients of California Work Opportunity and Responsibility to Kids [CalWORKs]—formerly Aid to Families with Dependent Children [AFDC]), refugees and undocumented persons, and disabled and aged persons (who are primarily recipients of Supplemental Security Income/State Supplementary Program [SSI/SSP]). Figure 3 shows the caseloads for CalWORKs and SSI/SSP.

Medi-Cal Caseloads. As shown in Figure 2, the Governor's budget plan assumes that a significant decline in caseload will occur during the budget year in the Medi-Cal Program. Specifically, the overall caseload is anticipated to decrease by about 210,000 eligibles, or 3.3 percent, during 2003-04 compared to the estimated current-year caseload. This would reverse a trend of significant caseload growth in the program during the past couple of years.

The caseload projections for 2003-04 take into account the following Governor's proposals: (1) the proposed rescission of an expansion of health coverage for two-parent families earning up to 100 percent of the federal poverty level (FPL), (2) the proposed reinstatement of quarterly status reports for adults participating in the program, (3) the proposed rollback of an expansion of coverage for aged and disabled persons with income up to 133 percent of the FPL, (4) a step-up in efforts by county eligibility workers to remove ineligible persons on the Medi-Cal rolls, and (5) implementation of new procedures to help transfer children receiving immunization and screening services under the Child Health and Disability Prevention program into more comprehensive Medi-Cal coverage.

Healthy Families Caseload. The Governor's budget plan assumes that the caseload for the Healthy Families Program, which began enrolling children in July 1998, will continue to grow at a significant rate. The budget provides for the enrollment of almost 100,000 additional children, a 15 percent increase in caseload, by the end of 2003-04. The Governor's January budget plan also indicates that a proposed major expansion of the program to parents in families earning up to 250 percent of the FPL would again be delayed, this time to July 2006, because of the state's fiscal problems.

The CalWORKs and SSI/SSP Caseloads. Figure 3 shows the caseload trend for CalWORKs and SSI/SSP. While the number of cases in SSI/SSP is greater than in the CalWORKs program, there are more persons in the CalWORKs program—about 1.4 million compared to about 1.1 million for SSI/SSP. (The SSI/SSP cases are reported as individual persons, while CalWORKs cases are primarily families.)

To the extent that caseloads increased in these two programs, it has been due, in part, to the growth of the eligible target populations. As Figure 3 shows, the CalWORKs caseloads increased through the early 1990s due to the recession, peaking in 1994-95. Then the caseloads declined steadily for several years, bottoming out in 2001-02, and the budget projects that they will increase slightly in 2002-03 and 2003-04. We note that the Governor's budget does not reflect the most recent actual figures (from the summer of 2002) which suggest that the caseload has started to decline again, though at a significantly lower pace than in the late 1990s. (Please see the "CalWORKs" section of this Analysis for a discussion of the caseload.)

As discussed in our annual California's Fiscal Outlook report, the CalWORKs caseload decline was due to various factors, including the improving economy, lower birth rates for young women, a decline in legal immigration to California, changes in grant levels, behavioral changes in anticipation of federal and state welfare reform, and, since 1999-00, the impact of the CalWORKs program interventions (including additional employment services). The administration believes that the pause in the caseload decline in 2001-02 can be attributed to (1) the downturn in the economy, (2) growth in the child-only component of the caseload, and (3) the likelihood that the remaining caseload with adults probably faces substantial barriers to employment.

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 accounts for about one-third of the total caseload. The larger component—the disabled caseload—grew significantly faster than the rate of increase in the eligible population group (primarily ages 18 to 64) in the early 1990s. This was due to several factors, including (1) the increasing incidence of AIDS-related disabilities, (2) changes in federal policy that broadened 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. In recent years, however, the growth of the disabled caseload has slowed.

In the mid-to-late 1990s, the total SSI/SSP caseload leveled off and actually declined in 1997-98, in part because of federal changes that restricted eligibility. Since March 1998, however, the caseload has been growing moderately, about 2 percent each year. The administration's proposed 6.2 percent grant reduction results in about 15,000 persons, who were receiving grants under $50 per month, being removed from the caseload. Thus, for 2003-04, caseload growth is projected to be 0.7 percent rather than the typical annual growth of 2 percent.

Spending by Major Program

Figure 4 shows expenditures for the major health and social services programs in 2001-02 and 2002-03, and as proposed for 2003-04. As shown in the figure, three major benefit payment programs—Medi-Cal, CalWORKs, and SSI/SSP—account for a large share of total spending in the health and social services area.

As discussed earlier, much of the reduction in General Fund spending shown in Figure 4, such as the 34 percent drop in expenditures for the Medi-Cal Program, results from the Governor's realignment proposal. General Fund spending for In-Home Supportive Services, Foster Care, and the Child Welfare Services programs would have increased but for the proposal to shift program responsibilities and funding to counties. General Fund support for the Department of Developmental Services (Regional Centers and community services), which is unaffected by realignment, would grow more than any other major health or social services program under the Governor's budget plan. 

Figure 4

Major Health and Social Services Programs Budget Summary a

(Dollars in Millions)


Actual 2001-02

Estimated 2002-03

Proposed 2003-04

Change from 2002-03









 General Fund






 All Funds












 General Fund






 All Funds






AFDC-Foster Care






 General Fund





 All Funds












 General Fund






 All Funds






In-Home Supportive Services





 General Fund






 All Funds






Regional Centers/Community Services




 General Fund






 All Funds






Developmental Centers





 General Fund






 All Funds






Healthy Families





 General Fund






 All Funds






Child Welfare Services





 General Fund






 All Funds






Children and Families First Commission




 General Fund

 All Funds






Child Support Services





 General Fund






 All Funds






a Excludes departmental support.

Major Budget Changes

Figures 5 and 6 illustrate the major budget changes proposed for health and social services programs in 2003-04. (We include the federal funds for CalWORKs because, as a block grant, they are essentially interchangeable with state funds within the program.) Most of the major changes can be grouped into five categories: (1) funding caseload changes, (2) suspending COLAs, (3) grant and rate reductions, (4) the Governor's realignment proposal, and (5) adoption of other policy and structural changes in programs.

Figure 5

Health Services Programs Proposed Major Changes for 2003-04 General Fund



$7.0 billion



$3.6 billion



+  $395 million for increases in base program enrollment, plus $118 million for implementing various recent changes in eligibility procedures

+  $235 million to offset the loss of tobacco settlement funds

+   $113 million for increased support for county eligibility activities, with $194 million in offsetting savings from disenrolling ineligible persons

+  $54 million for increased premium costs for Medicare and Medicare HMOs, and $32 million for expansion of Adult Day Health Care

  $3 billion from the realignment of: long-term care ($1.6 billion), and 15 percent share of benefit costs ($1.4 billion)

  $630 million from reducing rates for physicians, nursing homes, and certain other providers by 15 percent

  $299 million by eliminating specified optional services for adults

  $166 million in additional savings from antifraud activities

  $112 million from tightening eligibility rules for working poor families and $64 million by doing so for aged and disabled persons

  $80 million by restoring quarterly status reports for adults


Department of Developmental Services


$2 billion



$131 million



+  $205 million for Regional Center increases in caseload, cost, and utilization

  $100 million from establishing statewide standards for the purchases of services in Regional Centers


Caseload Changes. The budget funds caseload growth in SSI/SSP, the Healthy Families Program, and CalWORKs. The budget reflects projected caseload increases of 0.7 percent in SSI/SSP, 0.5 percent in the CalWORKs program, and 15 percent in the Healthy Families Program. The budget also reflects a 3.2 percent reduction in the caseload of the Medi-Cal Program.

Figure 6

Social Services Programs Proposed Major Changes for 2003-04 General Fund



$1.6 billion



-$478 million


+  $66 million to fulfill the remaining Welfare-to-Work match obligation

+  $114 million for welfare-to-work services

  $547 million from realigning 50 percent of administration and services costs to counties

  $238 million from a 6.2 percent grant reduction

  $252 million cost avoidance by deleting the June and October 2003 statutory COLAs



$2.3 billion



-$696 million


+  $55 million for caseload increase

  $662 million from a 6.2 percent grant reduction

  $95 million from realigning the state-only program for immigrants to the counties

  $372 million cost avoidance by not providing the June 2003 and January 2004 statutory state COLAs

In-Home Supportive Services


$16 million



-$1 billion


+  $71 million for caseload increase

+  $38 million for higher wages for certain providers

  $1.2 billion from realigning virtually all nonfederal program costs to the counties

Cost-of-Living Adjustment Suspensions and Grant Reductions. The budget proposes to suspend statutory COLAs for CalWORKs, SSI/SSP, and does not provide the discretionary COLA for Foster Care and related programs. Similarly, the budget proposes no inflation adjustment for county administration of CalWORKs, Foster Care, Food Stamps, and Child Welfare Services. In addition to the COLA suspensions, the budget achieves significant savings from 6.2 percent grant reductions in SSI/SSP and CalWORKs.

The Governor's Realignment Proposal

The Governor's budget proposes a realignment plan to shift a total of $8.2 billion in program costs, including a substantial portion of current health and social services, to the counties along with the revenues to support them.

Specifically, in social services, the Governor proposes to shift $3.5 billion in program costs to the counties. With the exception of the CalWORKs program discussed below, the Governor proposes to realign 100 percent of most current state social services program costs to the counties. The current county shares for these programs range from 0 percent to 60 percent. With respect to CalWORKs, counties now have a fixed responsibility (about 21 percent) of CalWORKs administration and no share of cost for Employment Services. Under the realignment proposal, counties would have a 50 percent share for these two CalWORKs program components. 

The Governor's realignment plan would also achieve $3.4 billion in General Fund savings by shifting health programs to counties. Counties, which now generally do not share in the cost of Medi-Cal health programs, would have a 15 percent share of the cost of benefits. In addition, the entire nonfederal share of the cost of providing nursing home care under Medi-Cal would be shifted to counties as part of a larger realignment of long-term care programs. The administration proposal would also move to the counties a number of "safety net" public health programs to support clinics and indigent care, certain categorical mental health programs, as well as Drug Medi-Cal and other substance abuse treatment programs supported from the General Fund.

For a complete discussion of the Governor's Realignment proposal, please see "Part V" of The 2003-04 Budget: Perspectives and Issues.

Other Policy and Structural Changes in Programs

Medi-Cal. The spending plan proposes a significant increase in resources—about $36 million in state funds in the current fiscal year, and an additional $113 million increase in 2003-04—for county eligibility activities. The administration indicates that part of these funds will be used to disenroll a total of 560,000 ineligible Medi-Cal recipients at a savings to the state in 2003-04 of $194 million.

The spending plan also includes a number of significant program cuts. These include a 15 percent reduction in provider rates primarily affecting physicians and nursing homes; the elimination of certain optional services for adults, such as dental care and optometry; rollbacks of expansions of coverage to the working poor and aged and disabled; and tightening of program eligibility rules through the reinstatement of quarterly status reports for adult beneficiaries. The Governor's budget also would establish a new tax on intermediate care facilities as a mechanism to draw down additional federal support. Further savings from antifraud activities are also assumed in the spending plan.

Department of Developmental Services. The budget plan proposes to achieve $100 million in General Fund savings by establishing statewide standards for the purchase of services for the developmentally disabled. Additional General Fund reductions would be achieved by shifting more support for Regional Centers to federal funds and establishing fees for some parents of children receiving services.

Other Health Programs. Significant reductions are proposed in a variety of public health programs, including establishment of copayments for individuals participating in the AIDS Drug Assistance Program, reforms in the operation of the Genetically Handicapped Persons Program, and reductions in support for certain health research activities. A major increase in General Fund support would be provided for mental health services for Medi-Cal children. Also, the Governor would raise $4.5 million a year by imposing a surcharge on various medical licenses to pay for various medical training programs.

Restructuring Proposals. The Governor has several proposals to restructure health and social services programs. The budget proposes to shift the habilitation services program from the Department of Rehabilitation to the Department of Developmental Services. The Department of Community Services and Development would be eliminated and the operation of its federal programs transferred to the Department of Social Services. Similarly, the Emergency Medical Services Authority would become part of the Department of Health Services (DHS). Domestic violence programs administered by the Office of Criminal Justice Planning would also be consolidated into DHS. The Governor would also initiate steps to close the Agnews Developmental Center.

Return to Health and Social Services Table of Contents, 2003-04 Budget Analysis