Legislative Analyst's Office, July 17, 1997

Federal Expansion of Children's Health Coverage Potential Savings That Could Provide Sources of State and Local Matching Funds

The House and Senate budget reconciliation bills currently pending in Congress both provide additional funds for the states to expand health care coverage for low-income children. The Senate bill authorizes expansion to cover children in families with incomes up to 200 percent of the federal poverty level, while the House bill allows coverage in families with incomes up to 300 percent of the poverty level. Both bills require a state match, but at a lower matching rate than under the Medi-Cal Program.

Annual State/Local Contribution Could be Roughly $100 Million to $200 Million

Based on an initial reading of the two federal budget reconciliation bills currently pending in Congress, it appears that the nonfederal contribution by the state and/or local governments needed in order for California to receive the full amount of new federal funds could be in the range of $100 million to $200 million annually. Total funding for the new program could be in the range of roughly $500 million to $800 million annually at the maximum funding level.

Potential Sources of Savings

Federal Match for Existing Children's Health Programs. A number of existing state and county programs provide health care to low-income children. Depending on how the state chooses to implement the new federal program, some or all of the services provided by these existing programs could be shifted to the new program. The federal government then would cover most of the cost--the federal matching rate for the new program could be up to 80 percent versus the current 51 percent federal match in the Medi-Cal Program. Figure 1 (see next page) shows some of the existing state and local programs that might be replaced, in whole or in part, by the new federal program.

Cost of Existing State and County Programs Providing Health Care to Low-Income Children

Figure 1

(In Millions)
1997-98 Estimated Cost
State County
Child Health and Disability Prevention (CHDP). Provides health screening, immunizations, and case management to children through age 18 with family income up to 200 percent of poverty who do not qualify for Medi-Cal. $33.3 General Fund

$48.9 Proposition 99

CHDP Follow-Up Treatment. Counties and certain clinics must provide treatment for medical problems identified by CHDP screens. This requirement is a condition of receiving Proposition 99 funds under three programs--California Healthcare for Indigents Program, Rural Health Services, or Early Access to Primary Care clinic grants. Unknown portion of state allocations to counties and clinics (primarily Proposition 99 funding) are used for this program. Unknown, but exceeds $16 in reported costs.
California Children's Services. Funds services and case management for children with severe medical conditions on a sliding-scale basis (only a nominal payment for families under 200 percent of poverty). Families with incomes up to (and in some cases exceeding) $40,000 are eligible. $41.7 General Fund $47.5
Access for Infants and Mothers. Provides subsidized health insurance to women and infants with incomes between 200 percent of poverty (the limit for Medi-Cal coverage) and 300 percent of poverty. $39 Proposition 99 --
County Indigent Care. Provides health care services to poor children who are not covered by Medi-Cal. Specific services and qualifications vary by county. Unknown. State realignment and Proposition 99 funds help finance county indigent care programs. Unknown

Potential Medi-Cal Savings. Medi-Cal currently pays major medical costs for many uninsured children with family incomes that are too high to qualify for regular ongoing Medi-Cal coverage. These are children who qualify for Medi-Cal as "medically needy" or "medically indigent" when their monthly medical bills exceed their share of cost (the difference between the family's income and the allowable income level). The federal share of these medical costs under the current Medi-Cal Program is 51 percent. Some of these children presumably would be covered on a regular basis under the new federal program, with a higher federal match rate. State savings (potentially tens of millions of dollars annually) would result because the federal government would pay a larger share of major medical expenses for these children.

Federal Restrictions May Limit Realization of State Savings

The House and Senate versions of the pending federal budget legislation limit states' ability to shift existing Medicaid caseload to the new children's programs. The Senate version of the legislation also contains complex additional restrictions and state maintenance-of-effort requirements. The state's ability to realize savings by shifting existing programs to the new program will depend on the restrictions included in the final legislation and in subsequent implementing regulations.

Federal Budget Legislation Could Result in Other Medi-Cal Savings

The Senate version of the federal budget legislation would enable the state to reimpose limits on Medi-Cal payments to providers for services to "dual eligibles"--persons who qualify for both Medicare and Medi-Cal benefits. Medi-Cal pays for Medicare premiums, coinsurance, and deductibles. Amounts billed for services under Medicare often exceed Medi-Cal rates for those services. The federal courts recently overturned state law that prohibited Medi-Cal payments that would result in the combined Medicare/Medi-Cal payment exceeding the allowable Medi-Cal cost. Approval of the Senate provision, would enable California to realize approximately $140 million of annual General Fund savings, which would be available for any General Fund purpose.

Federal Budget Health Provisions Also Include Some Cost Pressures

Both federal budget reconciliation bills include a phased reduction in disproportionate share hospital (DSH) funding provided to the states. In California, federal DSH funding totals about $1.1 billion annually, and is allocated to public and private hospitals with significant Medi-Cal caseloads under the SB 855 program. These DSH payments have the effect of augmenting Medi-Cal hospital rates and help finance indigent care. The proposed federal DSH limitations will have little or no effect in 1997-98, but they will result in a reduction of up to approximately 20 percent by 2002. A portion of any state or county savings resulting from the expansion of children's health coverage could be used to mitigate this DSH funding reduction.

Another state cost pressure results from the failure of either bill to provide the $216 million in reimbursements to California for the cost of emergency Medi-Cal services to illegal immigrants that is assumed in the conference version of the state budget. The House bill provides only $20 million annually nationwide, and the Senate bill contains no funding for this purpose.

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