LAO 2003-04 Budget Analysis: Health and Social Services

Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill

Managed Risk Medical Insurance Board (4280)

The Managed Risk Medical Insurance Board (MRMIB) administers several programs designed to provide health care coverage to adults and children. The Major Risk Medical Insurance Program provides health insurance to California residents unable to obtain it for themselves or their families because of pre-existing medical conditions. The Access for Infants and Mothers (AIM) program currently provides coverage for pregnant women and their infants whose family incomes are between 200 percent and 300 percent of the federal poverty level (FPL). The Healthy Families Program provides health coverage for uninsured children in families with incomes up to 250 percent of the FPL who are not eligible for Medi-Cal.

The budget proposes $972 million from all fund sources ($92 million General Fund) for support of MRMIB programs in 2003-04, which is an increase of $128 million or about 15 percent ($61 million General Fund) over estimated current-year expenditures. This increase is due primarily to projected caseload increases in the AIM and the Healthy Families Programs. In addition, the administration has proposed to shift $10.5 million from MRMIB programs formerly supported by the Tobacco Settlement Fund (TSF) to the General Fund due to the securitization of the TSF revenues. The budget further reflects caseload increases due, in part, to the implementation of the Child Health and Disability Prevention (CHDP) "gateway" program to shift children into other health programs providing more comprehensive medical care.

The administration proposes to implement a plan to transfer infants now enrolled by their families in AIM into the Healthy Families Program, while maintaining health coverage for their mothers through AIM. Under the Governor's budget plan, the Rural Health Demonstration Project (RHDP) would be discontinued in the budget year.

Finally, the budget proposes the enactment of legislation to permanently extend the Healthy Families Program, which by law would otherwise expire on January 1, 2004.

Access for Infants and Mothers


The AIM Program provides comprehensive health care for low- to moderate-income women throughout their pregnancy, delivery, and 60 days after delivery. The program also provides health insurance to infants born to women enrolled in AIM until their second birthday. To be eligible for the program, women must be no more than 30 weeks pregnant, have no health coverage for their pregnancy, and have incomes between 200 percent and 300 percent of the FPL. The Medi-Cal Program provides coverage to pregnant women and their infants in families with incomes up to 200 percent of the FPL.

Currently, program participants pay a fee of 2 percent of their family income toward the costs of services received by the mother and an infant up to one year of age (an average of about $790). Infants can receive coverage for a second year for an additional $100, or $50 if their recommended one-year vaccinations are up to date.

Governor's Proposal. As summarized in Figure 1, the Governor's budget proposes about $118 million from all funds ($7 million General Fund) for the AIM program, about a 22 percent increase over program spending in the current year. The growth in expenditures is largely attributable to caseload increases.

Figure 1

Access for Infants and Mothers Program Budget Summary

(In Millions)





Perinatal Insurance Fund (Proposition 99)




General Fund



Tobacco Settlement Funds


Federal funds








The Governor's budget proposes to discontinue coverage of infants in AIM, and instead enroll them in the Healthy Families Program. Clients' financial contributions would be reduced from 2 percent of family income to 1.5 percent to offset the premiums families would subsequently pay in the Healthy Families Program.

The Governor's proposal would take advantage of available federal funds, thereby reducing state expenditures by shifting health coverage for infants from the AIM program to the Healthy Families Program. This shift permits a draw down of federal funds for infants with family incomes of 200 percent to 250 percent of FPL. The infants with family incomes between 250 percent and 300 percent of FPL would be funded entirely with state funds. The administration estimates that the proposal will result in budget-year expenditures of about $977,000, due to the decrease in family financial contribution. However, in 2004-05 the anticipated savings is $6.7 million and in 2005-06 savings are estimated to be $10.1 million.

Healthy Families Program


Healthy Families Is a Relatively New Program. The federal Balanced Budget Act of 1997 (BBA) made available approximately $40 billion in federal funds over ten years to states to expand health care coverage for children under the State Children's Health Insurance Program (SCHIP). The BBA also provided states with an enhanced federal match as a financial incentive to cover children in families with incomes above the previous limits of their Medicaid programs.

California decided in 1997 to use its approximately $4.5 billion share of SCHIP funding to implement the state's Healthy Families Program. Funding for the program generally is on a 2-to-1 federal/state matching basis. Families pay a relatively low monthly premium and can choose from a selection of managed care plans for their children. Coverage is similar to that offered to state employees and includes dental and vision benefits.

Program Expansions. The program began enrolling children in July 1998. In 1999, it was expanded to include children with family incomes up to 250 percent of the FPL, as well as legal immigrant children, who are not eligible to receive federal funds and therefore do not draw federal matching funds.

In January 2002, the state was granted a waiver request by the federal government to expand the Healthy Families Program to uninsured parents of children eligible for the Healthy Families or Medi-Cal programs up to 200 percent of the FPL. As state statute requires, the administration has indicated its intention to submit in the future to federal officials an amendment to the waiver further expanding eligibility for parents up to 250 percent of the FPL. However, the Governor's budget proposes to delay implementation of the Healthy Families parent eligibility expansion until July 2006 due to the state's fiscal problems.

The Budget Proposal. As shown in Figure 2, the January budget proposes $815 million (all funds) in Healthy Families Program expenditures in the budget year. This is an increase of about 16 percent over estimated current-year expenditures. The budget proposes $85 million in General Fund support for the Healthy Families Program, a $54 million increase above the current-year level. This increase in General Fund expenditures is due to caseload increases and the shift of some program funding from the TSF to General Fund. (This funding shift is discussed in more detail later in this section.)

Figure 2

Managed Risk Medical Insurance Board Healthy Families Expenditures

(In Millions)



2003-04 January Budget

Budget Act


Local Assistance










State operations








Tobacco Settlement Fund




General Fund




Federal funds








a Detail may not total due to rounding.

Budget Reflects Growing Children's Caseload

We withhold recommendation on the administration's request to increase expenditures for Healthy Families for caseload increases and associated expenditures. Although enrollment has been higher than the level projected in last year's budget, recent population trends and other factors indicate that General Fund support for the program may be overbudgeted by more than $20 million in the budget year.

Caseload Estimate. The MRMIB anticipates total enrollment in the budget year of 768,232 children who qualify for federal matching funds—referred to as "federally qualified"—and 26,872 legal immigrant children who do not qualify for federal funds and thus are funded almost entirely with state funds.

Figure 3 shows MRMIB's Healthy Families caseload projections for the current year and budget year. The Governor's budget proposal assumes an increase of 99,715 children in the budget year. Over one-third of this projected increase (37,115 children) would result from the implementation of the CHDP program gateway proposal, which is an effort to help transition eligible children receiving screening and immunizations under CHDP into more comprehensive health care coverage under Medi-Cal and Healthy Families.

Figure 3

Healthy Families Caseload Estimates a


Budget Estimate

Revised 2002-03

Proposed 2003-04

Change From 2002-03





 Federally qualified children




 Legal immigrant children








a Includes children shifted from the CHDP gateway.

The MRMIB anticipates that enrollment of federally qualified children (including children shifted from CHDP) will grow by about 14 percent, or 94,540 children, in the budget year. The projected growth in enrollment of immigrant children (including children shifted from CHDP) in the budget year is 5,175, an increase of about 24 percent.

Budget Plan Reflects Faster Caseload Growth. The Governor's January 2003 budget proposal assumes that the overall caseload for the Healthy Families Program will grow faster than previously expected in both the current and budget years. Figure 4 (see next page) compares the caseload estimates for the Governor's 2003 January budget plan with (1) the caseload assumptions of the 2002-03 Budget Act and (2) the actual caseload growth which occurred from March 2002 through December 2002. (The figures do not include children that are projected to be shifted from CHDP.)

As the figure shows for this period, the number of federally qualified children who have been enrolling in Healthy Families is above the level assumed in the 2002-03 Budget Act, while the number of immigrant children is somewhat below the level that was budgeted last year. The administration has revised its current-year caseload estimates in its proposed budget for 2003-04.

The MRMIB estimate of budget-year caseload growth also reflects a significant new assumption regarding the total number of potential enrollees in the Healthy Families Program. This new assumption is based on a comprehensive new statewide survey of over 55,000 randomly selected households on a variety of health related issues known as the California Health Interview Survey (CHIS). In the past, MRMIB had estimated the number of eligible children based on the national Current Population Survey (CPS) prepared by the U.S. Census Bureau.

The CHIS survey data, collected by researchers through a collaboration of the University of California at Los Angeles Center for Health Policy Research, the Department of Health Services (DHS), and the private Public Health Institute, suggest that the total number of uninsured children eligible for the Healthy Families Program is larger than previously thought. The caseload projections for the Healthy Families Program were increased to reflect this greater potential for enrollment. The administration intends to further adjust its caseload and cost projections for the Healthy Families Program at the time of the May Revision.

Analysis of the Budget Request. Our analysis of recent caseload trends and other factors suggests that the administration's proposed funding adjustments for the Healthy Families Program may be overbudgeted by about $20 million. Specifically, the costs associated with enrollment of children from the CHDP program may be overbudgeted by as much as $10 million and costs associated with general enrollment trend assumptions may be overbudgeted by more than $10 million. Our review follows.

Other Factors Could Affect Caseload. Any projection is at risk of being in error, and there are a number of factors that could influence the accuracy of the projections of the Healthy Families Program caseload and costs. One key factor that could affect the Healthy Families caseload in 2003-04 is the economy. California is experiencing the first soft economy since the implementation of the Healthy Families Program and it is unclear what affect this may have on the rates at which children enroll and disenroll in the program. Enrollment could be greater than estimated to the extent that a family's income decreases to the point that the family becomes eligible for the Healthy Families Program. At the same time, disenrollment in the Healthy Families Program could increase as parents in low-income families already enrolled in the program lose their jobs or enough income such that the family qualifies for the Medi-Cal Program.

Analyst's Recommendation. Because of the uncertainty over the Healthy Families Program projection resulting from the recent slowdown in caseload growth, we withhold recommendation on the administration's request for increased funds for caseload growth and associated expenditures . The administration will update its projections this spring. We will continue to monitor program enrollment trends and recommend adjustments, if necessary, following our review of the May Revision.

Tobacco Settlement Funds Could Fall Short

The amount of tobacco settlement revenues (TSRs) available for support of the Healthy Families Program could be significantly less than the $220 million assumed in the Governor's budget plan. A shortfall in TSRs would put additional pressure on the General Fund to continue support for the program at budgeted levels.

Tobacco Settlement Revenues May Not Materialize. Under the tobacco securitization program adopted last year, the state is raising $4.5 billion in General Fund proceeds by selling revenue bonds backed by the state's future stream of TSRs from cigarette companies. Nevertheless, the budget assumes that $220 million in proceeds from the TSF will be available on a one-time basis in 2003-04 to help fund the Healthy Families Program. The 2003-04 Governor's Budget assumes that the state can sell a sufficient amount of tobacco bonds to both raise the $4.5 billion in cash and have enough left over to prepay the 2003-04 debt service costs on the bonds. This would result in $220 million in additional funding available on a one-time basis.

At this point, based on the first portion of the bond sale, however, it is uncertain whether the amount of future tobacco settlement payments will be sufficient to support a larger bond sale. Thus, the $220 million in assumed support for the Healthy Families Program from TSRs is at risk. If the assumed TSRs do not materialize, it is likely that this program support would be shifted to the General Fund.

Analyst's Recommendation. We recommend that the Legislature request the Department of Finance to report at the time of budget hearings on the availability of TSRs for the support of the Healthy Families Program in 2003-04.

Rural Health Demonstration Projects

The Governor's budget proposes to discontinue the Rural Health Demonstration Project (RHDP), which provides funding for clinics in rural areas and to those that serve certain special populations. In addition, the Governor's budget proposes to include as part of a larger realignment plan, the Indian Health Program and the Seasonal, Agricultural and Migratory Worker Programs. In the event that the Legislature does not approve the realignment of these public health programs, it may want to consider instead the option of consolidating them into RHDP thereby continuing the program. This would maximize the use of available federal funds, and reduce General Fund expenditures by as much as $8.9 million.


The RHDP was enacted into law by Chapter 623, Statutes of 1997 (AB 1126, Villaraigosa). The goals of the program are to improve health care access for rural residents and certain special populations that have limited access to health care services. The program makes funding available to clinics that are geographically isolated in rural areas and to urban and rural clinics serving children of migratory and seasonal farm workers, American Indians, and fishing and forestry workers. The RHDP projects include mobile dental vans, telemedicine centers, school-based dental programs, and nutrition counseling.

Budget Proposal. The funding provided for RHDP in the current year is about $5 million. The program receives about a two-to-one federal-to-state match for program expenditures. Of the total for the program, $1 million in support comes from the General Fund, $683,000 from other state funds, and $3.2 million from federal funds. The budget proposes to discontinue the RHDP in 2003-04. The program is set to expire under existing statute at the end of the current year. A May 2002 report on RHDP outcomes indicated that the RHDP has been successful in expanding access to health care services.

The Governor's budget proposes to eliminate in 2003-04 two state-funded clinic grant programs now operated by the DHS known as the Indian Health Program (IHP) and the Seasonal, Agricultural, and Migratory Workers program (SAMW). As part of a larger proposal for realignment of state and county funding and program responsibilities, an amount of funding equivalent to the current-year allocations for these two programs—about $13.4 million—would be shifted to counties to provide these public health services.

Please see a more detailed analysis of the Governor's realignment proposal in "Part V" of The 2003-04 Budget: Perspectives and Issues. In that analysis, we concur with the Governor's proposal to include these programs within a realignment package. In the event that the Legislature does not approve a realignment plan as part of the 2003-04 budget, or chooses not to realign these particular programs, it may wish to consider the option we discuss below that would continue funding for these programs at the state level.

Programs Could Be Consolidated

In the event that the Legislature does not approve the Governor's realignment plan or chooses not to realign these particular programs, it may wish to consider extending RHDP and consolidating into it the IHP and SAMW now run by DHS. Our analysis indicates that, if a shift of these programs to MRMIB did occur, the state could maintain about the same level of funding for them while also achieving General Fund savings of about $8.9 million.

As we noted earlier, each dollar the state spends in RHDP generates about two dollars in federal matching funds. In contrast, the IHP and the SAMW program are funded entirely from the state General Fund. Thus, consolidating the functions of the two DHS programs into RHDP could allow the state to sustain their overall level of funding while reducing General Fund expenditures.

Figure 5 shows how the funding provided for these programs would change under our option. As the figure shows, the state currently spends a total of $13.4 million for the SAMW and IHP. Under our option, $4.5 million in General Fund support for SAMW and IHP would be transferred to RHDP, thereby drawing down an additional $9 million in federal funds. As a result, the overall level of funding and services provided under the program would remain level even though it would now be less costly to the state.

Figure 5

General Fund Savings Under LAO Consolidation Option

(In Thousands)


General Fund

Federal Funds

All Funds


















 RHDPc (including IHP & SAMW)




 2002-03 to 2003-04




 Change in funding level




a IHP = Indian Health Program

b SAMW = Seasonal, Agricultural and Migratory Worker program

c RHDP = Rural Health Demonstration Project

One reason for consolidating these three programs is that the IHP and SAMW programs serve similar populations and geographic areas as RHDP and grant funds are often awarded to the same clinics. During 2002-03 more than 60 percent of RHDP funding went to clinics that also received funding from either SAMW or IHP.

However, the MRMIB may have to obtain federal approval for these program shifts into RHDP, a factor that could delay the implementation of this option.

Analyst's Recommendation. Given the state's fiscal difficulties, we believe the Legislature should consider the option of consolidating the two DHS clinic grant programs into RHDP in the event that the Legislature does not approve or does not include them within the Governor's realignment plan. The shift of these two programs from DHS to MRMIB would help maximize the use of available federal funds and would result in a logical consolidation of programs serving similar populations and geographic areas.

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