LAO 2006-07 Budget Analysis: Health and Social Services

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006


General Fund spending for health and social services programs is proposed to increase by 4.5 percent to almost $28.5 billion in 2006-07. This net increase in spending is due primarily to a variety of caseload and cost increases that are partially offset by grant savings in certain social services programs.

Expenditure Proposal and Trends

Budget Year. The budget proposes General Fund expenditures of $28.5 billion for health and social services programs in 2006-07, which is 29 percent of total proposed General Fund expenditures. Figure 1 shows health and social services spending from 1999-00 through 2006-07. The proposed General Fund budget for 2006-07 is $1.2 billion (4.5 percent) above estimated spending for 2005-06. Special funds spending for health and social services is proposed to increase by $267 million to about $6.7 billion.

Historical Trends. Figure 1 shows that General Fund expenditures (current dollars) for health and social services programs are projected to increase by $10.9 billion, or 63 percent, from 1999-00 through 2006-07. This represents an average annual increase of 7.2 percent. Similarly, combined General Fund and special funds expenditures are projected to increase by about $13.4 billion (61 percent) from 1999-00 through 2006-07, an average annual growth rate of 7.1 percent.

Adjusting for Inflation. Figure 1 also displays the spending for these programs adjusted for inflation (constant dollars). On this basis, General Fund expenditures are estimated to increase by 27 percent from 1999-00 through 2006-07, an average annual rate of 3.5 percent. Combined General Fund and special funds expenditures are estimated to increase by 26 percent during this same period, an average annual increase of 3.4 percent.

Caseload Trends

Caseload trends are one important factor driving health and social services expenditures. Figures 2 and 3 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 four groups: (1) families and children, (2) refugees and undocumented persons, (3) disabled beneficiaries, and (4) aged persons (who are primarily recipients of Supplemental Security Income/State Supplementary Program [SSI/SSP]). Figure 3 shows the caseloads for California Work Opportunity and Responsibility to Kids [CalWORKs] and SSI/SSP).

Medi-Cal Caseload. As shown in Figure 2, the Governor’s budget plan assumes that a modest increase in caseload will occur during the budget year in the Medi-Cal Program. Specifically, the overall caseload is expected to increase by about 127,000 average monthly eligibles (1.9 percent) to a total of about 6.8 million in 2006-07. This would be a slightly higher pace of growth than is projected for 2005-06. The caseload projections for 2006-07 take into account the Governor’s budget proposals discussed below to encourage eligible, but currently unenrolled, children to sign up for Medi-Cal, in part by simplifying the annual eligibility redetermination form. This change is expected to result in a caseload increase of 27,000. The Medi-Cal budget proposal also reflects continued growth in several eligibility categories, primarily aged and disabled beneficiaries and nonwelfare families.

Healthy Families Program (HFP) Caseload. The Governor’s budget plan assumes that the current-year enrollment for HFP will fall short by about 40,000 of the number assumed in the 2005-06 Budget Act. However, the spending plan further assumes that the program caseload will increase by about 106,000 children or almost 13 percent during the budget year. Of this increase, about 30,000 are forecast to be due to the implementation of various program outreach activities and changes in the HFP enrollment process. The budget proposal estimates that a total of 933,000 children will be enrolled in HFP as of June 2007.

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, both programs serve about 1.2 million persons. (The SSI/SSP cases are reported as individual persons, while CalWORKs cases are primarily families.)

As Figure 3 shows, the CalWORKs caseload declined steadily since 1996-97, essentially bottoming out in 2002-03. For 2005-06 and 2006-07, the budget projects the caseload will remain essentially flat with no net growth. The substantial CalWORKs caseload decline shown in Figure 3 was due to various factors, including the improving economy, lower birth rates for young women, a decline in legal immigration to California, and, since 1999-00, the impact of CalWORKs program interventions (including additional employment services). The recent flattening of the caseload may be attributable to the composition of the remaining caseload, part of which includes adults who face 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 (increasing at about 1.5 percent per year). This component accounts for about 30 percent of the total caseload. The larger component-the disabled caseload-typically increases by about 3 percent per year. Since 1998 the overall caseload has been growing moderately, between 2 percent and 2.5 percent each year.

Spending by Major Program

Figure 4 shows expenditures for the major health and social services programs in 2004-05 and 2005-06, and as proposed for 2006-07. As shown in the figure, three major benefit payment programs-Medi-Cal, CalWORKs, and SSI/SSP-account for a large share (about 74 percent) of total spending in the health and social services area.


Figure 4

Major Health and Social Services Programsa

(Dollars in Millions)


Actual 2004‑05

Estimated 2005‑06

Proposed 2006‑07

Change from 2005‑06









General Fund






All funds












General Fund






All funds






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






Community Mental Health Services






General Fund






All funds






Mental Hospitals / Long-Term Care Services






General Fund






All funds






Healthy Families Program






General Fund






All funds






Child Welfare Services






General Fund






All funds






Child Support Services






General Fund






All funds







a    Excludes administrative headquarters support.

b    Medi-Cal General Fund would increase $901 million or 6.8 percent if $359 million in spending were not shifted to the
Department of Mental Health budget. General Fund for Community Mental Health Services would grow by $5 million or 1.6 percent absent this technical funding shift.


As Figure 4 shows, General Fund spending is proposed to increase in all major health programs. The large increase in community mental health services is due primarily to a technical funding shift of General Fund support to the Department of Mental Health budget that previously had been displayed in the Department of Health Services (DHS) Medi-Cal budget. If this change did not occur, the increase in General Fund support shown for the Medi-Cal Program would be greater than shown here.

In regard to social services programs, General Fund support for SSI/SSP, In-Home Supportive Services, Child Welfare Services, and Child Support would increase, while General Fund support for CalWORKs and Foster Care would decline. Overall, the budget proposes to increase spending by about $150 million (1.7 percent) compared to 2005-06. With the exception of the SSI/SSP grant reduction, and reductions in CalWORKs county block grant funds discussed below, the social services budget generally funds the requirements of current law. We note that current law already suspends the state cost-of-living adjustments (COLAs) for both SSI/SSP and CalWORKs during 2006-07.

In contrast, most health programs would be funded in a way that is consistent with existing eligibility, benefits, and other requirements, and some aspects of the budget plan would expand Medi-Cal, HFP, and various public health programs.

Major Budget Changes

Figures 5 and 6 illustrate the major budget changes proposed for health and social services programs in 2006-07. (We include the federal Temporary Assistance for Needy Families [TANF] 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 most caseload changes, (2) further delaying welfare COLAs, (3) reductions in allocations for county administration of health and social services programs, (4) shifts of funding and programs so that they are no longer supported from the General Fund, and (5) other policy changes.


Figure 5

Health Services Programs
Proposed Major Changes for 2006‑07
General Fund





Medi-Cal (local assistance)


$13.7 billion





$542 million







+     $493 million from higher costs and utilization of pharmacy and inpatient hospital services, mainly for the aged and disabled



+     $212 million net increase in costs from implementing the new Medicare drug benefit for beneficiaries also enrolled in Medi-Cal



+     $147 million from increased costs for premiums paid by Medi-Cal on behalf of beneficiaries who are also enrolled in Medicare physician and hospital services



+     $70 million from growth in the number of enrollees in Medi-Cal managed care



+     $20 million from higher enrollment from simplifying redetermination of eligibility






     $359 million reduction from a technical shift of funding for mental health services



     $121 million net decrease in costs from various funding shifts related to new federal hospital finance waiver and related state legislation



     $21 million reduction from not providing a cost-of-living increase for Medi-Cal county administration






Public Health
(local assistance)


$392 million





$11 million







+     $46 million to enhance statewide emergency preparedness, mitigation, and response activities related to pandemic influenza and other disease outbreaks







Figure 6

Social Services Programs
Proposed Major Changes for 2006‑07
General Fund







$2.0 billion





-$7.4 million







+     $58 million for Temporary Assistance for Needy Families to replace General Fund in Child Welfare



+     $20 million for caseload increase






     $93 million from proposed net reduction in county block grant allocations for child care, administration, and welfare-to-work services



     $30 million from delaying payment of performance incentives








$3.6 billion





$58 million







+     $66 million for caseload increase






     $17 million in increased savings from further delaying the “pass through” of the January 2007 federal cost-of-living adjustment until July 2008






In-Home Supportive Services


$1.3 billion





$52 million







+     $108 million for caseload increase






     $51 million from full-year implementation of quality assurance initiative





Caseload Changes. The budget funds caseload changes in the major health and social services programs. For example, the Medi-Cal budget reduces spending for lower-than-anticipated caseload in the current year but adds resources for the cost of caseload increases expected in the budget year. Also, the Medi-Cal budget would be adjusted upward by $493 million for significant growth in the baseline costs and utilization of services by various groups of eligibles, but especially the aged and disabled. General Fund support for community services at regional centers for the developmentally disabled would continue to grow due mainly to caseload growth, rate increases, and utilization increases in these services. Funding would be adjusted downward in the current year for HFP to reflect lower than anticipated caseload in 2005-06, but increased in the budget year for anticipated strong caseload growth.

Cash Grant COLAs. The budget follows current law, which suspends both the state SSI/SSP COLA for January 2007 and the state CalWORKs COLA for July 2006. Current law delays the “pass-through” of the SSI/SSP January 2007 federal COLA until April 2007. The budget proposes to further delay the SSI federal COLA until July 2008.

Reductions in County Administration. The budget reduces CalWORKs county block grants for administration, child care, and welfare-to-work services by $93 million, spread over 2005-06 and 2006-07. The budget also provides no inflationary adjustment for county administration of health and human services programs. Moreover, the budget proposes trailer bill language which would make counties permanently responsible for any future costs related to inflation.

Funding and Program Shifts. Following an increase in General Fund costs in 2005-06 for hospital services, the Governor’s budget proposal for Medi-Cal reflects a $121 million decrease in these costs in the budget year. This is due to the shift of certain Medi-Cal hospital costs to local governments under the terms of a statewide hospital financing waiver provided by the federal government and state legislation. Some federal funds available as part of the waiver package would also be used to reduce General Fund support for various health services programs operated by DHS, such as California Children’s Services. Additional tobacco tax revenues generated under Proposition 99 would be used to offset Medi-Cal costs to achieve General Fund savings.

Also, the budget would achieve some savings by using TANF federal funds to replace General Fund expenditures in child welfare services.

Other Policy Changes

Disaster Preparedness Efforts. The proposed spending plan increases General Fund support for Department of Health Services (DHS) and the Emergency Medical Services Authority to support various actions intended to prevent the state from suffering a flu pandemic or other public health outbreaks and to respond more effectively in the event such a disaster occurs.

Enrollment in Children’s Health Coverage. The administration is proposing a series of actions in the Medi-Cal and HFP to enroll more children in health coverage and to increase the number in such programs who renew their enrollment each year. The proposals do not change eligibility but focus on increasing the number of children in coverage who are already eligible for benefits under current law.

Licensing and Certification Reform. Health and Human Services Agency departments are responsible for licensing and certification of nearly 500,000 facilities and professionals, including child care providers, nursing homes, foster care homes, hospitals, and various health professionals. To improve these efforts, the Governor is proposing to add about 160 new staff positions to the DHS licensing and certification division, the state agency that licenses nursing homes. The administration is also proposing to collect some fees every other year instead of each year, and would deposit the fees that are collected in a new special fund instead of the General Fund. Also, the Governor is proposing 76 more staff positions for the Department of Social Services to meet the required workload for licensing and inspecting child care, foster care, and adult residential facilities.

Mental Health Program Changes. The budget plan states the Governor’s continued intent to develop a plan to eliminate a state mandate for a mental health services program for children enrolled in special education and sets aside some funding in the education and Commission on State Mandates budgets for this purpose. The administration also proposes to add 453 positions to the state hospital system to respond to federal civil-rights investigations.

Proposition 36. The spending plan proposes to extend on a one-time basis in 2006-07 the $120 million in General Fund support currently being provided for implementation of Proposition 36, a measure approved by voters in November 2000 to divert certain drug offenders from jail and prison to community drug treatment programs. The administration indicates its support of the continued funding is conditional upon the legislative enactment of changes to Proposition 36, including greater authority for judges to impose short jail sentences on offenders who fail to show up for treatment and to impose drug-testing requirements as a condition of probation.

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