2016-17 State Budget–January 7, 2016

Earlier today, Governor Brown presented the 2016-17 proposed state budget.  The proposed budget increases spending for education, health care and state infrastructure, while bolstering the state’s Rainy Day Fund and paying down state debts and liabilities.  The increases in health care are to recognize changes in programs by the federal government and increased caseload rather than increases in rates or benefits. 

Specifically, district/municipal hospitals will want to note that while there are no reductions in Medi-Cal rates, there also was not an elimination of the AB 97 retroactive reductions currently in place which reduce DP/NF rates for the period of June 2011 through August or September 2014.  There is a proposed managed care organization (MCO) tax in the budget, but it has not yet been approved by all parties and the federal government.  The proposed budget optimistically assumes that the MCO tax passes.  If, for some reason, it does not, then reductions and/or moving forward with various programs will be revisited.  The MCO tax is proposed to be an overall tax proposal across health plans. The revenue will be used to restore funding (7% cut) for In-home Support Services (IHSS), in addition to continuing to off-set Medi-Cal expenditures.  

Additional details: 

Health and Human Services

The Budget includes $136 billion ($34 billion General Fund and $102 billion other funds) for health programs.  

The Medi-Cal 1115 waiver, called Medi-Cal 2020, was mentioned as it includes federal funding of $6.2 billion over five years (including the Public Hospital Redesign and Incentives in Medi-Cal – PRIME – program for district/municipal public hospitals (DMPHs)). 

In addition to waiver programs, the federal government requires as a condition of the waiver an independent assessment of access to care and network adequacy for Medi-Cal managed care beneficiaries and independent studies of uncompensated care and hospital financing.  More information to follow on the assessments. 

Medi-Cal Funding

Since 2012-13, total Medi-Cal benefit costs grew at an average of 22 percent annually to $87.9 billion in 2015-16 because of a combination of health care cost inflation, program expansions, and caseload growth. Medi-Cal General Fund spending is projected to increase 8 percent from $17.7 billion in 2015-16 to $19.1 billion in 2016-17. 

The Budget assumes that caseload will increase approximately 8.1 percent from 2014-15 to 2015-16 and 1.5 percent from 2015-16 to 2016-17. Recent caseload trends reflect a larger increase in the current fiscal year (727,000), with more typical growth (62,000) by 2016-17. With these trends, over a third of the state’s total population will be enrolled in Medi-Cal, with total caseload expected to be 13.5 million in 2016-17.  In addition, with the implementation of the ACA, the Medi-Cal caseload will increase from 7.9 million in 2012-13 to a projected 13.5 million in 2016-17, covering over a third of the state’s population. 1.5 million people will be enrolled in Covered California by the end of 2015-16. Covered California is now a self-sustaining entity primarily through the fees it assesses on qualified health plans to fund its operating budget. 

The Budget assumes net costs of $4 billion ($1.9 billion General Fund) in 2016-17 for the cost of the mandatory Medi-Cal expansion. Additionally, the federal government will pay 100 percent of the cost of the optional expansion for the first three years. Beginning in 2017, the state assumes a 5-percent share for the optional expansion population.  By 2020-21, the federal share will have decreased to 90 percent and the state will pay 10 percent. The Budget assumes costs of $14.1 billion ($740.2 million General Fund) in 2016-17 for the state’s share of costs for the optional Medi-Cal expansion Medi-Cal funding will be increased to provide coverage to undocumented children and increase reimbursements to counties for Medi-Cal enrollment.  

Coordinated Care Initiative

The Administration proposes to continue to implement the CCI for dual eligibles in specified counties in 2016. Over the course of the next year, the Administration will seek ways to improve participation in the program and extend the allowable managed care organization tax discussed above. If the tax is not extended and participation is not improved by January 2017, the CCI would cease operating effective January 2018.  

The full summary of the Governor’s budget proposal can be found at www.ebudget.ca.gov or www.dof.ca.gov. 

The Legislature will conduct hearings on the components of the budget and a revised budget will be released in early May that takes into account state revenues.  DHLF staff and advocates will keep you apprised as the proposed 2016-17 budget moves through the process.  If you have any questions, please let me know.