Executive Summary

In this report we (1) provide an overview of state spending on health programs, (2) analyze the Governor’s budget proposals and present our own recommendations to assist the Legislature in balancing the 2009–10 budget, and (3) identify issues that could potentially have a significant impact on future state expenditures.

Overview of Health Program Expenditures

A Wide Array of Programs. California’s major health programs provide health coverage and additional support services for various groups of eligible persons—but primarily poor families and children as well as seniors and persons with disabilities. Medi–Cal is by far the largest state health program both in terms of funding and persons served. In addition, the state supports health care insurance for children, various public health programs, substance abuse treatment programs, and community services and state–operated facilities for the mentally ill and developmentally disabled.

Governor Proposes to Hold General Fund Spending for Health Virtually Flat. The budget proposes General Fund expenditures of $20.7 billion for health programs in the budget year, which is about 22 percent of total proposed General Fund expenditures. This would be an increase of $14 million General Fund, or 0.1 percent, above the adjusted spending level for 2008–09, holding General Fund spending virtually flat compared to the current–year spending level. The budget plan does this by using two basic approaches: (1) making reductions to control expenditures that are generally caused by caseload, cost, and utilization growth in health programs, and (2) using alternative funding sources for certain programs that are currently funded by the General Fund.

Balancing the 2009–10 Budget

Federal Stimulus Package Would Likely Provide Fiscal Relief. At the time this analysis was prepared, various key provisions of the federal fiscal stimulus package under consideration in Congress had yet to be finalized. However, based on our review of the available draft legislation, it appears that the stimulus package will provide substantial fiscal relief to California in the form of enhanced federal contributions to the state’s Medi–Cal Program. The draft legislation also includes other provisions that would expand Medi–Cal eligibility for certain groups and provide funds to encourage the adoption of health information technology. We note that the options to expand eligibility pose a significant financial risk to the state at a time when it is likely to continue to have a sizable and ongoing structural budget.

Federal Program Reauthorization Allows for Program Expansion. At the time this analysis was prepared, Congress appeared to be close to agreement on federal legislation that would reauthorize the State Children’s Health Insurance Program (SCHIP) through September 2013. We note that some provisions would allow the state to draw down additional federal funds for newly qualified immigrants and thus reduce state costs. Other provisions, such as new identification and documentation requirements, would increase state costs. We recommend that the state forego at this time an option available under the new federal legislation to expand children’s coverage up to 300 percent of the federal poverty (FPL) level because of the state’s current fiscal condition.

Proposition 99: Options for Legislative Consideration. Under the existing provisions of Proposition 99, a 1988 initiative approved by voters, the Legislature only has limited flexibility to prioritize the use of the tobacco tax revenues for the programs it deems to be the highest priority. These restrictions include the requirements for six separate accounts with distinct funding purposes, limits on the use of some of these monies to leverage federal funds, and prohibitions on the use of funding to pay for existing General Fund–supported programs. We propose seeking voter approval for modifications to Proposition 99 to “unlock” spending now earmarked for certain Proposition 99 programs, a step that could allow the Legislature to achieve substantial General Fund savings in the budget year.

LAO Alternatives for Achieving Savings. Based on our review of the Governor’s budget plan, and our own independent analysis, we recommend several alternatives to achieve savings in health programs in 2009–10.

Other Issues

The Broker Model for Medicaid Nonemergency Medical Transportation (NEMT). In order to help Medicaid enrollees obtain better access to health care services, the federal government requires state Medicaid programs to provide necessary medical transportation to and from health care providers, even if no emergency is present. This benefit is known as NEMT, and includes such services as trips to and from scheduled medical appointments, return trips from hospital emergency rooms, and transfers between hospitals. Our review indicates that Medi–Cal potentially could improve the availability and quality of its NEMT services while reducing costs by contracting with a transportation broker to manage a portion of its NEMT services. We recommend that the state conduct a pilot program by contracting with such a vendor for two years to evaluate the potential for improvement.

Failure to Promulgate Medi–Cal Regulations Leads to Inefficiency. How counties administer Medi–Cal eligibility determinations affects access to care for the poor, compliance with federal laws, and overall state costs for the Medi–Cal Program. We find that the state’s failure to promulgate regulations regarding eligibility functions can cause inefficiency at the county level and impede the state’s ability to manage county administration. We recommend that the Legislature require the Department of Health Care Services (DHCS) to take steps to promulgate such regulations.