Analysis of the 2008-09 Budget Bill: Health and Social Services

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 preexisting 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 (HFP) provides health coverage for uninsured children in families with incomes up to 250 percent of the FPL who are not eligible for Medi–Cal and provides health coverage for certain uninsured infants born to AIM mothers.

The MRMIB also administers the County Health Initiative Matching Fund (CHIM), a program established as a component of Healthy Families pursuant to Chapter 648, Statutes of 2001 (AB 495, Diaz). Under CHIM, counties, County Organized Health System managed care health plans, and certain other locally established health programs are authorized to use county funds as a match to draw down federal funding to purchase health coverage for children in families with incomes between 250 percent and 300 percent of the FPL. No state funds are used to support CHIM.

Budget Proposal. The budget proposes $1.3 billion from all fund sources ($390 million from the General Fund) for support of MRMIB programs in 2008–09, which is a decrease of about $3 million from all fund sources over estimated current–year expenditures. This decrease is attributable to the proposed budget–balancing reductions that we discuss below.

The Governor’s budget plan includes the implementation of Chapter 328, Statutes of 2006 (SB 437, Escutia), which, among other things, allows HFP subscribers to self–certify income at the time of annual eligibility review. The Governor vetoed funding for SB 437 in the 2007–08 Budget Act indicating that his intent was to delay the program for one year. The budget includes $5 million in total funds ($1.8 million General Fund) for SB 437 to reflect the impact of increased enrollment due to income self–certification and about $930,000 in implementation costs, including three new staff positions.

Healthy Families Program

Background

Expanded Health Coverage for Low–Income Children. The federal government authorizes states to expand health care coverage for children under the State Children’s Health Insurance Program (SCHIP) and provides 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. Funding for SCHIP generally is available to states on a two–to–one federal/state matching basis.

California utilizes its SCHIP funding to support HFP. Through this program, children in families earning up to 250 percent (and in select cases up to 300 percent) of FPL receive comprehensive health care coverage that includes dental, vision, and basic mental health care benefits. Families pay a relatively low monthly premium and can choose from a selection of managed care plans for their children. This program is administered by MRMIB.

The Budget Proposal. As shown in Figure 1, the Governor’s budget proposes $1.1 billion (all funds) in HFP expenditures for 2008–09. This is a decrease of about 1.5 percent over estimated current–year expenditures. The budget proposes about $390 million in General Fund support for HFP, a $5.6 million decrease below the revised current–year level. The decrease in General Fund expenditures is due to the budget–balancing reductions proposed in HFP discussed earlier.

Withhold Recommendation on Budget–Balancing Reductions

We withhold recommendation on the proposed budget–balancing reductions pending completion of rate and contract negotiations with the health plans.

The budget proposes reductions of $41.9 million General Fund and $76.1 million federal funds to HFP. These budget–balancing reductions include:  

• Reduction of HFP Plan Rates by 5 Percent. The budget includes a HFP plan rate reduction of 5 percent from the 2007–08 rates for health, dental, and vision plans. This rate reduction will result in savings of $22.4 million General Fund and $40.7 million federal funds.
• Increase in Premiums for HFP Subscribers Over 150 Percent of FPL. The Governor’s budget proposes to increase subscriber premiums for certain families. Specifically, premiums for families with incomes between 150 percent and 200 percent of FPL will increase from $9 per child per month to $16 per child per month and from a maximum of $27 per family per month to a monthly maximum of $48 per family. Additionally, premiums for families with incomes above 200 percent of FPL will increase from $15 to $19 per child per month and from a per month maximum of $45 to $57 per family monthly. Premiums will not increase for families with incomes below 150 percent of FPL. These premium increases will result in savings of $11.1 million General Fund and $20.2 million federal funds.
• Implementation of HFP Annual Dental Benefit Limit. The budget proposes to establish an annual benefit limit for dental coverage of $1,000 per child. Currently there is no limit on dental benefits in HFP. It is estimated that 5 percent of HFP subscribers will reach
• this benefit limit. This proposal will result in savings of $6.3 million General Fund and $11.4 million federal funds.
• Increase in Co–Payments for Nonpreventative Services for Certain Subscribers. The budget includes an increase in co–payments from $5 to $7.50 for nonpreventative services for families with incomes over 150 percent of FPL. This increase in co–payments will result in savings of $3.4 million General Fund and $6.2 million federal funds.

The above changes to the HFP benefits and plans must occur in time for MRMIB to communicate each plan’s package of benefits to subscribers prior to the 2008 open enrollment period (April 15 through May 31). Consequently, MRMIB indicates that legislation would need to be enacted by March 2008 in order to achieve these savings in 2008–09.

Withhold Recommendation Pending Results of Rate Negotiations. We withhold recommendation on the proposed budget–balancing reductions pending completion of rate and contract negotiations with the health plans. Currently, MRMIB does not anticipate any benefit reductions or reductions in access to services, but until the contracts have been negotiated we are unable to evaluate the impacts of this proposal.

Federal Funding Expires in Budget Year

Federal funding for the Healthy Families Program (HFP) expires in March 2009. In light of this funding uncertainty, we recommend the enactment legislation that directs how the Managed Risk Medical Insurance Board should manage HFP enrollment at a level that is consistent with available funding.

Federal Funding Level Temporarily Sufficient

Sufficient Funding for HFP in 2007–08. As a result of state program expansions and underlying growth in HFP caseload, the current level of SCHIP funds being spent each year now exceeds the federal SCHIP funds allocated annually to California. As a result, in federal fiscal year 2008 (October 1, 2007 through September 30, 2008), which overlaps with the state’s 2007–08 fiscal year, California became a “shortfall state” because its annual federal allocation plus its carryover funds from previous years are not sufficient to support its existing caseload. California’s projected shortfall for federal fiscal year 2008 is over $200 million.

Initially, the state faced a funding shortfall in 2007–08 because SCHIP funding was only authorized until September 2007 and then reauthorized on a month–to–month basis until the recent federal legislation was passed in December. This legislation included sufficient funds for California to maintain projected enrollment levels through March 2009. However, at the time this analysis was written, the federal process for funding shortfall states and the allocations to each state had not been announced.

Emergency Regulations Adopted in Current Year to Address Potential Shortfall. In light of the current year funding uncertainty, in November 2007, MRMIB approved the adoption of emergency regulations to establish a wait list for the program and require some current recipients to no longer receive services (referred to as “disenrollment”). These actions were designed to manage enrollment at a level consistent with available funding. However, since federal funding was ultimately extended, MRMIB never had to exercise this authority.

Level of Federal Funding Uncertain in Budget Year

Since SCHIP funding has only been extended through March 2009, the state is not assured that (1) it will receive the same amount of funding as it did in the current year nor (2) the funding necessary to meet the projected caseload growth for state fiscal year 2008–09 will be available. This uncertainty in federal support could have a significant impact on HFP caseload and the level of spending for this program.

Options for Managing Enrollment Consistent With Available Funding

Given the uncertainty of funding levels for the budget year, we recommend the enactment of legislation that directs how MRMIB should address potential funding shortfalls. The MRMIB has the authority to establish a wait list for the program and require disenrollments. (Because HFP plans and benefits are negotiated prior to the start of the budget year the state could not change its contracts with the health care plans and address the funding shortfall to achieve savings.) We recommend the changes below in order to better prioritize who receives these benefits. Specifically, the legislation should:

• Prioritize Waiting List to Reflect Need. Although MRMIB already has the authority to establish wait–lists, the Legislature should require MRMIB to modify its first–come, first–served approach to prioritize coverage for the poorest eligible children, and/or those with the most significant medical needs. See Analysis of the 2004–05 Budget Bill, page C–149, for further discussion on issues related to a HFP waiting list.
• Modify CHIM Program Income Eligibility Requirements. The CHIM program allows counties, County Organized Health System managed care health plans, and certain other locally established
health programs to use local funds as a match to draw down federal funding to purchase health coverage for children in families with incomes between 250 percent and 300 percent of FPL. The CHIM counties may continue to provide coverage using only local funds if there were a reduction in federal funds. If counties were to do so, the CHIM program should be modified to allow counties to provide coverage to children otherwise eligible for HFP but placed on a waiting list. This would address the inequity by which CHIM children in families could receive coverage while those in families with lower incomes (who are eligible for HFP) would remain on a waiting list.

We bring this to the Legislature’s attention because we find that these changes would better enable MRMIB to target services to children in the most need of medical care.