Analysis of the 2004-05 Budget Bill Legislative Analyst's Office February 2004

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 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 just over $1 billion from the General Fund for support of the IHSS program in 2004-05, a decrease of $136 million (13 percent) compared to estimated expenditures in the current year. Most of the decrease is attributable to (1) the full-year impact of the Governor's mid-year proposal to eliminate the residual program, and (2) proposed reductions in state participation in provider wages.

Governor Proposes to Restrict Eligibility And Reduce Provider Wages

The Governor's budget reflects his mid-year proposal to eliminate the residual (state-only) program and presents new proposals to limit state support for provider wages to the minimum wage, and reduce services for recipients living with able-bodied relatives. Together these proposals result in net General Fund savings of $492 million in 2004-05. This is roughly 35 percent of total program costs based on the requirements of current law.

The Governor proposes sweeping reductions to the IHSS program in the form of eligibility restrictions, provider wage reductions, and limitations on services. The details of each aspect of the proposal are discussed below. In a subsequent discussion, we comment on the Governor's proposal and present alternatives for legislative consideration.

Eligibility Restriction

The proposed elimination of the residual (state-only funded) program represents a significant eligibility restriction. Eliminating the residual program is estimated to remove 57,000 aged, blind, or disabled individuals from the caseload and results in estimated net General Fund savings of $366 million in 2004-05.

Currently, the residual program provides services to 75,000 recipients who are not eligible for federal reimbursement through Medicaid, which provides 50 percent federal funding for the PCSP. Figure 1 shows the reasons the major components of the residual caseload are not eligible for the federally funded PCSP. The three largest components of the residual caseload are (1) those individuals receiving no personal care services (in other words, they only receive domestic services such as cleaning and meal preparation), (2) those persons who have chosen a responsible relative as their provider (generally the parent of a minor child or a spouse), and (3) those individuals receiving protective supervision services. The Governor's budget assumes that the approximately 18,000 recipients who have chosen a responsible relative as their provider will switch to a nonrelative provider and will therefore retain eligibility for IHSS by switching to the federally funded PCSP. The bud get assumes that the remaining 57,000 cases will become ineligible for IHSS services.

In addition to the above proposal to eliminate the state-only residual program, the Governor has two proposals that would impact the PCSP which is in part federally funded through Medicaid. These proposals are reducing provider wages and reducing services for recipients living with able-bodied relatives.

Reducing State Participation in Provider Wages

Minimum Wage. The Governor's budget proposes to limit state participation in provider wages to the California minimum wage ($6.75 per hour). Currently, the state participates in provider wages of $9.50 per hour plus 60 cents per hour worked for health benefits. Some counties pay more than this amount while others pay less. The proposed reduction in state participation in wage payments results in General Fund savings of $98 million in 2004-05. Under the proposed policy, counties would be free to pay wages above the minimum wage, and the federal government would share in about 50 percent of the cost for wages above the minimum.

Implementation of the reduction would begin no sooner than October 2004 and would be delayed in any county until such time as their current collective bargaining agreements expire. According to the Department of Social Services (DSS), the reduction would phase in between October 2004 and March 2005.

Elimination of Related Employer Mandates. Currently, counties are required to designate an entity as the "employer of record" for IHSS providers for purposes of collective bargaining. Many counties formed "public authorities" for this purpose. Current law also requires that counties form advisory committees to assist in this process. The Governor's budget proposes to eliminate the requirement that counties designate an employer of record. This effectively removes the requirement that counties operate public authorities and have advisory committees. Accordingly, the budget eliminates funding for advisory committees and the portion of public authority costs attributable to collective bargaining negotiations. The state would continue to pay 70 percent of the nonfederal cost of the remaining public authority costs related to program administration—the county share is the remaining 30 percent. The net General Fund savings from eliminating these requirements are estimated to be $2.2 million in 2004-05.

Reducing Services for Recipients Living With Relatives

The budget proposes to eliminate domestic services pertaining to common areas of residences that are shared with relatives. The reduction in services would be phased in during annual eligibility redeterminations beginning in October 2004 and is estimated to result in General Fund savings of $26.3 million.

Background. Under current law, domestic services (cleaning, cooking, laundry, etc.) are provided to the recipient for his or her own room, and for common areas (such as the kitchen, living room, dining room) on a pro-rated basis depending on the number of individuals living in the household. For example, if one recipient occupying one bedroom with its own private bath lived in a household with 3 common rooms and 3 other individuals, current law would assign necessary domestic services for 100 percent of the recipient's living quarters and a 25 percent share of the necessary upkeep for the three common rooms. The Governor's budget proposes to eliminate services for common areas when the recipient lives with able-bodied relatives.

Future Proposal for Reducing Service Hours

The Governor's budget notes that state level reviews of county determinations of service hours indicate that up to 25 percent of authorized service hours "may be unnecessary or not actually provided" to the recipient. The administration has indicated its intent to submit a quality assurance proposal in the spring to improve the IHSS needs assessment designed to reduce the over-authorization of service hours.

We would note that the county reviews did not include Los Angeles County, which tends to assign less hours than the state average. Further, counties indicate that the review methodology did not employ a completely random sample. The 25 percent finding, was based on a subset of cases for which a desk audit first indicated a significant potential for error. For these reasons, the 25 percent figure should probably be viewed as an upper end estimate. Nevertheless, a well-designed quality assurance program could result in significant savings.

Comments on the Governor's IHSS Proposal

The Governor's proposal to eliminate the residual program, limit state participation in provider wages, and reduce services to recipients with relatives results in substantial state budgetary savings and a potential hardship for low-income Californians who receive IHSS. We recommend that the Legislature consider each aspect of the proposal on a case-by-case basis, assessing both its impact on recipients and the estimated savings. We believe the proposal to limit services for recipients living with family members merits approval because it is a reduction in services that can probably be absorbed by family members. With respect to the other proposals, we make no recommendation. Finally, we recommend that the administration report at budget hearings on the costs and benefits of a quality assurance program.

Below we comment on each aspect of the Governor's IHSS proposal. To assist the Legislature in evaluating the proposal, we developed a series of considerations which we apply to the relevant elements of the Governor's proposal. Specifically, the Legislature should consider:

• Impact on Recipients. What is the impact on recipients? Does the proposal achieve savings through benefit termination, by shifting recipients to the federally funded PCSP, or by reducing services or reducing choices available to the recipients?
• Increasing Federal Funds. Are there ways to facilitate more recipients becoming federally eligible? Shifting recipients from the state-only funded residual program to the federally supported PCSP benefits both the state and recipients. The state benefits from the federal financial participation which effectively reduces state and county costs by 50 percent. Recipients benefit by retaining their services.
• Administration Issues. Does the proposal raise implementation concerns?
• Realistic Savings. Are the savings estimates reasonable and what is the potential for cost shifts to other state programs?

Eliminating the Residual Program

As discussed earlier, the residual program provides services to those who are not eligible for the federal PCSP. (Please refer to Figure 1 for a breakdown of the reasons recipients in the residual IHSS program are ineligible for federal benefits.)

Impact on Recipients. Eliminating the residual program means that some recipients will lose benefits while others may be able to transfer to the federally funded PCSP. The budget assumes that 18,042 recipients with responsible relative providers will switch to nonrelative providers, thereby obtaining eligibility for the federally funded PCSP. (Responsible relative providers are typically a parent providing services to a dependent child, or a spouse providing services to a husband or wife.) In addition, 837 recipients who receive their IHSS funds at the beginning of the month and then disburse wages to their provider over the course of the month, will have the option of shifting to PCSP if they are willing to give up their "advance payment." Also, some portion of the 29,175 cases which receive only domestic services, and do not receive personal care services (bathing, toileting, etc.), could potentially become federally eligible if a social worker determines that some personal care services may be needed. (The federal government will pay for domestic services, so long as some personal care services are provided as well.) The remaining 27,000 residual cases will probably lose eligibility for the program.

Potential Income Loss for Certain Households. As discussed above, recipients with responsible relative providers may obtain eligibility for the federally funded PCSP by choosing a nonrelative to provide their IHSS services. That means the responsible relative would no longer be paid IHSS wages. In order to maintain the household income, the responsible relative would need to replace the lost IHSS wages with other earnings. However, under current federal regulations, such earnings in certain circumstances would be counted as family income available to the IHSS recipient and could reduce or completely eliminate the IHSS recipient's SSI/SSP payment. (Most IHSS recipients receive an SSI/SSP grant.) The DSS was unable to provide sufficient data to determine how many households might face this potential reduction in SSI/SSP benefits.

Facilitating the Shift to the Federal Program. Although the budget assumes that 18,000 recipients with responsible relative providers will switch to PCSP by changing to a nonrelative provider, such a massive change in providers may be difficult to achieve in a three-month transition period. If the Legislature were to adopt the Governor's proposal, it may wish to consider phasing in over a longer period the program change for recipients with responsible relative providers in order to facilitate the transition. Also, some recipients may be uncomfortable with a nonrelative as their IHSS service provider. Accordingly, the Legislature could consider a system whereby current responsible relative providers switch and become the provider for other families with IHSS recipients. For example, a mother currently caring for her daughter might be more comfortable with a nonrelative provider if she understood that the provider herself had a daughter receiving IHSS. To this end, the Legislature could provide technical assistance to public authorities to maintain registries of providers who have relatives receiving IHSS.

Estimated Savings Appear Reasonable. The administration estimates that net General Fund savings from eliminating the residual program will be $366 million in 2004-05 ($422 million in residual savings offset by cost of $56 million for former responsible relative provider cases shifting to PCSP). It is difficult to anticipate exactly how recipients and social workers would react under this proposal. On the one hand, not all recipients with responsible relative providers may be willing to switch to nonrelative providers. This would tend to increase the savings. Conversely, some of the advance pay cases are likely to switch to PCSP where the state has a share of costs, which would decrease state savings. Similarly, some of the domestic service only cases may switch to PCSP after reapplying for benefits, again potentially reducing the savings. Finally, the earnings of responsible relatives who no longer serve as IHSS workers could reduce SSI/SSP payments to recipients, which would result in state savings on SSI/SSP grant expenditures. Since the above factors could offset each other, the overall estimated savings appear to be reasonable.

Potential for Cost Shifts to Other State Programs. It is difficult to predict what may happen to recipients losing their in-home services. Some recipients may rely on extended family resources and move in with relatives or enter private assisted living centers. Others may need state-funded skilled nursing home care. Exit data compiled by DSS indicates that 9 percent of IHSS recipients exit to skilled nursing facilities and that 6 percent exit to some other type of out of home care. For illustration purposes, if 9 percent of the 57,000 cases facing service termination ultimately moved into a state-funded skilled nursing facility, the state costs would be about $125 million per year.

Reducing Provider Wages

Impact on Recipients. The proposal to reduce state participation in provider wages to the minimum wage has no direct impact on services for recipients. Instead, it reduces the income of providers. Reducing provider wages could have indirect impacts on recipients, however, by changing the labor pool available for IHSS. With lower wages, it is possible that some recipients may be unable to find providers and/or that their providers will be less skilled.

Savings Estimates. The administration estimates that limiting state support for provider wages to the minimum wage will result in savings of $98 million in 2004-05 based on part-year implementation. The full-year savings in 2005-06 would be $148 million. Based on our analysis, these savings estimates appear reasonable.

Reducing Services for Recipients Living with Relatives

Impact on Recipients. The proposal to eliminate domestic services related to the maintenance of common areas of living quarters shared with relatives has no impact on program eligibility. Rather, it results in a reduction in service hours. The impact would largely fall on the able-bodied family members who would need to assume responsibility for common area upkeep.

Savings Estimates. The estimated General Fund savings from this proposal are $26 million in 2004-05 based on part-year implementation. Full-year savings in 2005-06 would be $84 million. The amount of savings depends on how many IHSS recipients live with relatives. The DSS assumed that 65 percent of IHSS cases with "in common" domestic services lived with relatives, but has no data to support this assumption.

Implementation Concerns. In reviewing this proposal, the Legislature needs to carefully consider the definition of "common" services. For example, if the relatives work during the day, then lunch-time meal preparation and clean-up should probably not be considered a common service. Finally, under this proposal, recipients living with relatives will face a service reduction while recipients living with a nonrelative will not. This proposed difference in treatment in the PCSP may not be allowable under Medicaid rules pertaining to "state wideness" and "comparability." Under the state wideness rule, all recipients must have access to similar types and levels of care. Under comparability, Medicaid services must be equal in amount, duration and scope for those who are categorically eligible. To implement this proposal, the state may need a waiver of these federal rules.

Establishing a Quality Assurance Program

As mentioned earlier, the Governor's budget indicates that as much as 25 percent of service hours may be unnecessary or not actually provided to the recipient. The budget further indicates that a quality assurance proposal designed to address the over-authorization issue will be submitted during the spring of 2004.

State staff indicate that county workers in assessing the level of functional impairment of IHSS clients often fail to ask follow up questions to better determine the precise need for service hours. As a result, some cases are assigned more hours than necessary to compensate for the functional impairment of the IHSS client.

Investing in Quality Assurance. Given the potential for county over-authorization of hours, an investment in a quality assurance program could yield significant savings. Quality assurance could take many forms. For example, the Legislature could provide funding for technical assistance to better train county social workers who make IHSS assessments and ensure more consistency. In addition, the Legislature could provide increased funding for county social worker positions, so that IHSS intake caseloads could be reduced so as to allow social workers the time needed to be more thorough and assign service hours in a manner more consistent with state guidelines.

Potential Funding Source for Quality Assurance Activities. One potential source of funds to support a quality assurance program would be a fee on providers. Under this approach, providers would be "held harmless" because the proposed fee would be offset by a corresponding wage increase. Although all IHSS providers (both residual and federally funded PCSP providers) would pay the fee and receive the wage increase, the wage increase paid to PCSP providers would draw down federal funds through Medicaid. These federal funds would free up some of the fee revenues that otherwise would be needed to fund the wage increase for PCSP providers. The freed-up fee revenues could then be used to fund a quality assurance program. For a complete discussion of quality assurance fees (including other caveats and considerations), please see the "Crosscutting Issues" section of this chapter.

Analyst's Recommendation

The Governor's proposal to eliminate the residual program, limit state participation in provider wages, and reduce services to recipients living with relatives results in substantial state budgetary savings, but a poten tial hardship on low-income Californians who rely on their IHSS providers. We recommend that the Legislature consider each aspect of the proposal on a case-by-case basis, assessing both its impact on recipients and the estimated savings. Whether to adopt any of these proposals is a policy decision for the Legislature.

We believe the proposal to limit services for recipients living with family members merits approval because it is a reduction in services that can probably be absorbed by family members. With respect to the other IHSS proposals, we make no recommendation. Finally, we recommend that the administration report at budget hearings on the costs and benefits of a quality assurance program.