LAO 2004-05 Budget Analysis: General Government

Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

Health and Social Services Enrollment Caps

Most Enrollment Cap Proposals Flawed

The Governor's budget plan proposes to establish limits on enrollments ("caps") for certain specified health and social services programs. We recommend that the Legislature consider the Governor's enrollment cap proposal on a case-by-case basis, weighing the potential fiscal benefits of capping each identified health and social services program against the complexities and issues relating to the creation of caseload caps. Based upon such an analysis, we recommend that nine be rejected, propose one be approved with some modifications, and make no recommendation regarding one cap proposal.

Governor's Proposal

The Governor's spending plan assumes the continued implementation in 2004-05 of a proposal in his mid-year budget reduction package to impose enrollment limits for specified health and social services programs. His proposal, which is summarized in Figure 1, is anticipated to result in General Fund savings of about $1.2 million in the current year and almost $60 million in the budget year.

Figure 1

Proposed Health and
Social Services Enrollment Limits

(Dollars In Thousands)

Department, Program, and
Enrollees Affected

General Fund Savings

Capped Enrollment Levela

2004‑05 Effect On Recipients








  CalWORKs for legal immigrants


No effect because caseload expected to remain below limit.

  California Food Assistance Program



Caseload 273 fewer by 6/30/05.

  Cash Assistance Program for Immigrants




Caseload 984 fewer by 6/30/05.






  Medi-Cal (full-scope services for recent legal immigrants)



Average monthly waiting list of 11,439.

  Medi-Cal (nonemergency services for undocumented immigrants)



Average monthly waiting list of 65,900.

  Breast and Cervical Cancer Treatment Program ("state-only" patients)



Average monthly waiting list of 525.

  California Children's Services ("CCS-only" children)




Average monthly waiting list of 1,256.

  AIDS Drug Assistance Program




Waiting list of 1,392 by 6/30/05.

  Genetically Handicapped Persons Program (GHPP) ["GHPP-only" participants]




Average monthly waiting list of 3.






  Healthy Families Program (all populations)



Waiting list of 159,374 by 6/30/05.






  State hospitals (Only Not Guilty by Reason of Insanity and Incompetent to Stand Trial forensic admissions)




42 fewer hospital admissions by 6/30/05.







a  Administration estimate as of November 2003. Most caps would be based on January 1, 2004 caseload.

The caseload caps would affect selected programs and, in some cases, selected groups of individuals within programs operated by four agencies—the Department of Health Services (DHS), the Managed Risk Medical Insurance Board (MRMIB), the Department of Mental Health (DMH), and the Department of Social Services (DSS). For DHS, the affected programs are the AIDS Drugs Assistance Program (ADAP), the Breast and Cervical Cancer Treatment Program, California Children's Services (CCS), the Genetically Handicapped Persons Program (GHPP), and Medi-Cal (for legal immigrants and undocumented immigrants). Certain populations of forensic patients served by DMH would be capped, as would be all enrollment of children in the Healthy Families Program administered by MRMIB. The DSS programs that would be affected are the Cash Assistance Program for Immigrants (CAPI), the California Food Assistance Program (CFAP), and the California Work Opportunity and Responsibility to Kids (CalWORKs) program (for legal immigrants).

As Figure 1 indicates, most components of the Governor's proposal limit participation in these programs for recent immigrants and undocumented persons whose benefits may not qualify under federal law for federal reimbursement. However, the Governor's plan also would affect nonimmigrant children and adults, including children in the Healthy Families Program whose health coverage is eligible for federal matching funds. (The Governor's budget plan does not include a November mid-year budget reduction proposal, which was withdrawn in December, to limit the enrollment of persons with developmental disabilities in community services provided by regional centers.)

The proposed enrollment limits were all to have gone into effect during the first part of calendar 2004, with the first caps proposed to take effect in January and the last intended to take effect in April. At the time this analysis was prepared, however, the Legislature had not taken action regarding the Governor's proposals, and thus no caps had gone into effect.

Caseload Limits a Standard Practice

In concept, there is some merit to the approach of addressing part of the state's serious fiscal problems by imposing limits on caseloads. Such a strategy could be less disruptive to program beneficiaries than other approaches (for example, eliminating entire eligibility categories and service categories) for achieving state savings. Also, if the caps are ongoing, they would generally be effective in addressing the state's structural budget problem. We discuss these issues in more detail below. Such caps are already commonplace in other states and for other California programs, although federal law limits a state's ability to apply caps to programs funded with federal Medicaid reimbursements.

Other States and Programs Limit Caseloads. The concept of capping enrollments in public programs is not a new idea. For example, the number of subsidized child care slots provided is effectively capped by budget allocations. With the exception of CalWORKs recipients, low-income families are placed on waiting lists for child care. Families with the lowest income levels are prioritized for subsidized child care slots when they become available.

Such limits on participation are less common for health and social services programs, but others do exist. For example, unlike California, Illinois limits the availability of community services for persons with developmental disabilities in accordance with the state's resources available for their support. Illinois residents are placed on waiting lists when resources run short, with residential services prioritized for those who are in crisis situations, wards of the state approaching the age of 22, and individuals who reside in state institutions.

Six of the 35 states with separate State Children's Health Insurance Programs (the equivalent of the Healthy Families Program in California) have frozen enrollments because of budgetary problems. Two of the six closed their program rolls to new applicants, while the other four established waiting lists of applicants. Most of the states provide some limited exceptions to their enrollment caps, such as for children who automatically lose their Medicaid eligibility as they grow older.

California has already imposed some limits on services. The Managed Risk Medical Insurance Program operated by MRMIB, a program which provides affordable health coverage for individuals who have been denied coverage in the private insurance market, limits its admissions to stay within the program's annual General Fund appropriation.

Federal Law Limits Cap Options. One reason such limits are less common for publicly supported health programs is the constraints imposed on this approach under federal Medicaid rules. Medicaid, the main state-federal health program for the poor (known as Medi-Cal in California), is a source of financial support for a variety of specialized health-related programs, including drug treatment, mental health, nursing homes, and in-home supportive services, in addition to regular health care services.

In order to be eligible for federal reimbursement under Medicaid, federal law generally requires that all eligible persons receive any medically necessary services. Thus, waiting lists are generally precluded, except for federal waiver programs that permit states to cap the number of individuals receiving the specific services included under the waiver.

Notably, the Governor's proposals for capping enrollment do not involve any programs or Medi-Cal services that would risk the loss of federal Medicaid reimbursement. The caps affecting Medi-Cal services only limit those services that are provided on a "state-only" basis without any federal Medicaid match. For example, only nonemergency services, such as long-term care and family planning services, are capped for undocumented immigrants; no change is made for emergency services for undocumented persons, for which federal reimbursement is permissible. The Governor's budget plan similarly would only cap full-scope Medi-Cal services for legal immigrants who are not deemed "federally qualified" for federal reimbursement under Medicaid.

Less Impact on Current Recipients. In one respect, the Governor's proposal to achieve savings through the imposition of caps could be less disruptive than other approaches to achieving state savings in health and social services programs. The nature of enrollment caps is that no one currently receiving services through that program would be at risk of losing them so long as they complied with eligibility and other program rules. Such continuity of benefits obviously could be important for persons who are in the midst of medical treatment or who are temporarily relying on state assistance for the support for their family.

Fiscal Effect of Caps Would Grow Over Time. The imposition of caseload caps could help address the state's long-term structural budget problem by providing an ongoing budget solution that would probably grow in its fiscal impact over time.

We would note that this may not be the case for each program affected by the Governor's enrollment cap proposal. For example, growth in one of the two populations of forensic patients in state hospitals that would be capped (known as Not Guilty by Reason of Insanity, or NGI commitments) has been fairly flat so far in 2003-04. That is also the situation for the proposed limit on CalWORKs assistance for legal immigrants.

However, a number of the other programs have caseloads that have grown significantly in the past or are likely to accelerate in the future. One example is the Healthy Families Program, which is projected to increase by 16 percent in 2004-05 if an enrollment limit is not adopted.

While the CAPI caseload would remain relatively stable in 2004-05 without a cap in place, state law makes it likely that a surge in the number of persons receiving assistance will occur beginning in September 2006 as immigrants reach the end of a ten-year "deeming period" that has the effect of making many individuals ineligible for cash assistance due to a presumption that they are supported by their sponsors. Previous administration estimates suggest that the future cost to the state for their cash benefits could be in the tens of millions, and could eventually exceed $100 million annually. The state stands to avoid a significant increase in the cost of these programs if their enrollment is limited at this time. However, these post-2006 cost increases could also be avoided by further extending the deeming period, the approach taken by the Legislature in 2001.

Capping Enrollments Raises Issues

The Governor's enrollment-cap proposal raises a number of significant issues. Specifically, these includequestionspertaining to the equity of enrollment limits, their administrative cost and difficulty, the potential for offsetting costs that could negate the intended savings, risks to the implementation of program changes previously enacted by the Legislature, and an inaccurate savings estimate.

A detailed discussion of the effect of the enrollment caps for the Healthy Families and DMH hospitals can also be found, respectively, in the MRMIB and DMH sections of this chapter of the Analysis. We discuss some of the more general issues relating to health and social services program caseload limits in more detail below.

Equity Issues. In one sense, enrollment caps are equitable, in that all persons on waiting lists would be treated alike. However, such caps also put in place an "all or nothing" approach to providing services, in which individuals or families who meet the same eligibility requirements are treated unequally. Some get services because they qualified first, while others just like them do not.

The Governor's budget proposal raises several equity issues, in particular. It relies upon a "first-come, first-served" approach in determining which individuals on waiting lists would be enrolled as current program enrollees drop off the rolls and "room" is created for new applicants. Those who were poorer and therefore with fewer resources to seek alternative assistance, or with a more serious need for services, would not be prioritized for services. The choice of programs subject to enrollment caps also raises equity questions. For example, the Governor's plan proposes to cap "state-only" CCS, a program for children who are generally the sickest and most medically fragile, while not limiting services for other children with less intensive medical needs.

The Governor's proposal also creates "gaps" in coverage that raise equity concerns. For example, some children in poorer families may have to wait for months to obtain Healthy Families coverage while children in families with higher incomes might be able to obtain coverage without delay in counties participating in the Children's Health Initiative Matching Fund (CHIM) program which is not subject to a cap. Similarly, young children in poor families who are automatically disenrolled from Medi-Cal as they grow older would not be allowed to shift immediately to the Healthy Families Program, but would go on waiting lists, while children in higher-income families in CHIM counties would retain coverage.

Administrative Cost and Difficulty. In general, the imposition of enrollment caps makes programs somewhat more costly and difficult to administer. For example, procedures for the establishment of waiting lists, and for dealing with disputes with program applicants over the disenrollment and reenrollment in a program, can be a complex process to administer. 

The savings expected from some of the enrollment caps are fairly minor when compared to the overall program costs. For example, the budget assumes savings of $194,000 in 2004-05 from limiting enrollment in the $49 million GHPP program. Moreover, the administrative cap proposed for the CalWORKs for Immigrants program would result in no savings at all while generating costs. Likewise, the enrollment limit for CFAP would save an estimated $100,000 from a denial of benefits to a total of 188 persons during the budget year.

Also, several of the programs proposed for enrollment caps are affected by a separate administration proposal to transfer funding in certain programs for services for immigrants to the counties in the form of a block grant. (We discuss the block grant proposal in the "Crosscutting Issues" section of this chapter.) Under the Governor's budget plan, the state would go through the administrative process of establishing waiting lists for these individuals, only to subsequently eliminate their eligibility for the state program. Making all of these program changes within a matter of months would probably result in extra administrative costs.

In general, the Legislature should consider whether the savings resulting from an enrollment limit are worth the operational problems and administrative costs that such a change could create.

False Economies Possible. In some cases, the savings achieved in the short term directly due to the imposition of a caseload cap risks a result of greater state costs in the long run. This is a risk inherent in the proposal to cap participation in ADAP. Delaying assistance to low-income individuals with the HIV virus could result in their inability to purchase expensive "AIDS cocktail" medications. If their medical condition subsequently deteriorated because of AIDS to the point where they became disabled, they would become eligible for Medi-Cal coverage and might need costly inpatient hospital care. These additional costs over time might offset or exceed the savings from the enrollment cap.

Cap Places Program Changes at Risk. Establishment of an enrollment cap places at risk the implementation of program changes previously enacted by the Legislature. These policy impacts could be significant. For example, limiting enrollment for children in the Healthy Families Program could jeopardize prior federal approval of a future expansion of the program to eligible parents authorized by the Legislature. It could also hinder the implementation of a new effort to establish a "gateway" to shift children in the Child Health and Disability Prevention (CHDP) program to more comprehensive coverage in the Medi-Cal and Healthy Families programs.

Savings Estimate May Be Understated. The ADAP enrollment limit appears likely to have a larger effect and result in greater savings than the administration has estimated in its budget plan. Instead of impacting 1,392 individuals, this change appears likely to affect 2,100 and the state savings from the cap in 2004-05 would likely be about $2 million, rather than the $550,000 figure assumed in the Governor's plan.

Analyst's Recommendation

We recommend that the Legislature consider the Governor's enrollment cap proposal on a case-by-case basis, weighing the potential fiscal benefits of capping each identified health and social services program against the issues relating to that program that we have identified in this analysis. Based upon our own such analysis, we: (1) recommend that nine of the enrollment caps be rejected, (2) propose that one be approved with some modifications by the Legislature, and (3) make no recommendation regarding one cap proposal. We believe caps are a reasonable approach for the Legislature to consider for CAPI and DMH state hospitals, although alternative approaches to achieving savings warrant consideration and are feasible.

Figure 2 summarizes our reasons for our recommendations. In most cases, we recommend rejection because we found equity problems, risks to the implementation of policy changes previously approved by the Legislature, administrative costs and complexity, and the likelihood that savings would be offset by other costs. In the case of the state hospitals, we believe the proposed cap for selected populations is a reasonable interim step but that additional actions should be considered to prioritize the use of expensive inpatient beds for patients who are amenable to treatment. We discuss this issue in more detail in our discussion of the DMH budget request in this chapter of the Analysis.

Figure 2

LAO Recommendations on Governor’s
Enrollment Cap Proposals


Department, Program, and Enrollees Affected




  CalWORKs for Legal Immigrants

Reject. No savings would be achieved to offset administrative costs.

  California Food Assistance Program

Reject. Minor savings achieved from caseload cap probably not worth increased administrative costs and operational problems.

  Cash Assistance Program for Immigrants

No recommendation. A reasonable option to consider but raises fundamental policy question about limiting services for this population. There are alternatives for containing the cost of this program.



  Medi-Cal (full-scope services for recent legal immigrants

Reject. Could be difficult to administer and would create inequitable gaps in coverage.

  Medi-Cal (nonemergency services for undocumented immigrants)

Reject. Could be difficult to administer and would create inequitable gaps in coverage.

  Breast and Cervical Cancer Treatment Program ("state-only" patients)

Reject. Savings from caseload cap could be offset by increased future costs for treatment services.

  California Children's Services ("CCS-only" children not also in Medi-Cal or Healthy Families)

Reject. Would create inequitable situation in which CCS children with intensive medical needs would lack coverage while children needing only routine care would have coverage.

  AIDS Drug Assistance Program

Reject. Savings from caseload cap could be offset by increased future costs for treatment services.

  Genetically Handicapped Persons Program (GHPP) ["GHPP-only" participants not also in Medi-Cal]

Reject. Minor savings achieved from caseload cap probably not worth increased administrative costs and operational problems.



  Healthy Families Program (all populations, including recent legal immigrants)

Reject. Would create inequitable gaps in coverage and conflict with implementation of policy changes, such as the CHDP “gateway.”



  State Hospitals (Only Not Guilty by Reason of Insanity and Incompetent to Stand Trial forensic admissions)

Approve as interim step to prioritize use of inpatient beds for persons amenable to treatment.

In regard to CAPI, we have concluded that the enrollment cap is a policy call for the Legislature, given the state's fiscal difficulties. The Legislature must resolve the fundamental question as to whether limiting participation for these services is an appropriate public policy. If it determines it does not wish to adopt such an approach, we believe there are alternative approaches to containing future growth in the program, such as the option discussed above of modifying its deeming policies for such immigrants.

We recommend that the Healthy Families and Medi-Cal enrollment limits be rejected. The inequitable gaps in coverage that such limits would create, as well as the conflicts with the CHDP gateway and other prior legislative decisions, would be problematic and difficult to resolve. In our view, there are better alternatives for achieving program savings that we believe warrant legislative consideration. We identify these in this Analysis (including within the "Medi-Cal" and "MRMIB" sections of this chapter) and in The 2004-05 Budget: Perspectives and Issues.

Should the Legislature choose to proceed with enrollment caps for these programs, we would recommend that the Legislature examine alternative approaches that would make them more workable. For example, the Legislature may wish to consider allowing targeted exceptions to the enrollment limits, such as allowing poor children who are disenrolled from Medi-Cal as they get older to be enrolled in Healthy Families. Administrative costs might be reduced if certain programs were closed to new enrollment without the establishment of waiting lists. If waiting lists are to be established, the Legislature could establish criteria to prioritize the enrollment of individuals with the lowest incomes or greatest need for medical care or public assistance. Finally, if the Legislature chooses to adopt the CAPI and ADAP enrollment limits, it should increase the ADAP savings to $2 million.

Return to Health and Social Services Table of Contents, 2004-05 Budget Analysis