The 2017-18 Budget: The Coordinated Care Initiative: a Critical Juncture

The 2017-18 Budget: The Coordinated Care Initiative: A Critical Juncture MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 2017 2017-18 BUDGET 2 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET EXECUTIVE SUMMARY Medi-Cal and Medicare Jointly Provide Health Care and Long-Term Services and Supports (LTSS) to Many Seniors and Persons With Disabilities (SPDs). About 2.1 million SPDs are enrolled in Medi-Cal, the state-federal program providing health care and LTSS to low-income persons. LTSS include, among other supports and services, institutional care in skilled nursing facilities and home- and community-based services (HCBS) such as those provided by the In-Home Supportive Services (IHSS) program. About two-thirds of SPDs are also eligible for Medicare, the federal program that provides health care services to qualifying persons over age 65 and certain persons with disabilities. The SPDs who are eligible for both Medi-Cal and Medicare are known as “dual eligibles” and receive services paid by both programs. Coordinated Care Initiative (CCI) Implemented to Improve Coordination of Health Care and LTSS for SPDs and Reduce Overall Costs. The CCI is a joint state-federal demonstration project that was implemented beginning in 2012-13, and designed to improve the coordination of health care and LTSS and reduce the overall costs of providing care for SPDs. The CCI made a variety of changes in the seven “demonstration counties” where it was implemented, including: (1) integrating Medi-Cal and Medicare benefits for dual eligibles opting for managed care through a program known as Cal MediConnect, (2) mandatorily enrolling dual eligibles in managed care for their Medi-Cal benefits, (3) integrating LTSS under Medi-Cal managed care, (4) introducing state-level collective bargaining for IHSS providers, and (5) creating a universal assessment tool for all HCBS LTSS. On a statewide basis, the CCI replaced counties’ historical 35 percent share of nonfederal costs of the IHSS program with a maintenance of effort (IHSS MOE) that required counties to maintain their 2011-12 IHSS expenditure levels, with the addition of an annual growth factor of 3.5 percent and the costs of locally negotiated IHSS wage increases. Included in CCI-related legislation is a “poison pill” provision that automatically discontinues all components of the CCI if the administration determines that the CCI does not generate net General Fund savings. CCI Discontinued Following Administration’s Determination That CCI Does Not Generate Net General Fund Savings. With the release of the Governor’s 2017-18 budget, the administration estimated that the CCI generates net General Fund costs of $278 million in 2016-17 and $42 million in 2017-18. The major factor causing the CCI to generate net General Fund costs rather than savings in the administration’s determination was the IHSS MOE. In accordance with state law, this determination automatically ends the program. However, the Administration Proposes Continuing Certain Major CCI Components. Despite the automatic termination of the CCI, the Governor’s budget proposes continuing certain major CCI components, including: (1) Cal MediConnect, (2) mandatory enrollment in managed care for dual eligibles for their Medi-Cal benefits, and (3) the integration of LTSS other than IHSS under managed care. In effect, the Governor proposes continuing the CCI absent its IHSS components. By ending the CCI and not proposing to continue the IHSS MOE, the Governor would restore the counties’ historical share of IHSS costs. www.lao.ca.gov Legislative Analyst’s Office 3 2017-18 BUDGET End of IHSS MOE Provides Significant General Fund Relief While Significantly Increasing Costs for Counties. The termination of the IHSS MOE and restoration of the prior IHSS cost-sharing ratio is projected to shift over $600 million in IHSS General Fund costs back to counties in 2017-18. This shift in costs will create significant short- and long-term fiscal challenges for counties. Legislature Might Consider Providing Fiscal Relief to Counties. Counties have limited ability to absorb the costs of ending the IHSS MOE. Accordingly, the Legislature might consider providing some form of fiscal relief to counties to mitigate these fiscal challenges. While the administration has signaled an intent to work with counties, the Governor has not released a plan for providing fiscal relief to counties. Short-term fiscal relief could entail a one-time grant or loan from the General Fund. However, because the end of the IHSS MOE also creates long-term fiscal challenges for counties, the Legislature might consider ongoing modifications to counties’ share of costs for the IHSS program. Governor’s Proposal to Continue Parts of the CCI Is Appropriate . . . The steps taken under the CCI to enhance the coordination and integration of health care and LTSS are steps in the right direction. As such, we are supportive of the Governor’s proposal to extend certain major components of the CCI. . . . However, the Legislature Might Build on the Governor’s Budget by Considering Ways to Include IHSS Integration in the CCI Pilot. The Governor’s action to terminate the CCI and proposal to extend certain CCI components presents an opportunity for the Legislature to provide its vision for how health care and LTSS should be integrated in the future. As an enhancement to the Governor’s scaled-down version of the CCI, the Legislature could consider changes that build upon the gains that have been made under the CCI. Specifically, the Legislature may want to consider ways to include IHSS integration in the CCI pilot. These could range from providing some level of funding for continued care coordination between managed care plans and counties to piloting a fuller integration of IHSS within managed care in some counties. Depending on the level of IHSS integration within managed care plans, there are various trade-offs and financing considerations that would need to be considered. 4 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET INTRODUCTION Over two million seniors and persons with “poison pill” provision that gives the Department disabilities (SPDs) are enrolled in California’s of Finance (DOF) authority to discontinue the CCI Medicaid program (known as Medi-Cal), the without having to seek legislative approval if the state-federal program providing medical services CCI is shown not to generate net General Fund and long-term supports and services (LTSS) savings. (including In-Home Supportive Services [IHSS]) In conjunction with the release of the to low-income persons. The majority of SPDs are Governor’s 2017-18 budget, the DOF made the also eligible for Medicare, the federal program that determination that the CCI was not generating provides medical services to qualifying persons net General Fund savings, leading the Governor over age 65 and certain persons with disabilities. to eliminate the CCI pursuant to the poison The SPDs who are eligible for both Medi-Cal and pill provision. However, the Governor has also Medicare are known as dual eligibles and receive proposed an extension of certain major CCI services paid by both programs. In 2012-13, a components. In effect, the Governor proposes to demonstration project known as the Coordinated continue the components of the CCI unrelated to Care Initiative (CCI) began implementation. The IHSS. The Governor’s proposal therefore eliminates intent of the CCI was to improve the coordination the IHSS MOE, shifting over $600 million in IHSS of health care and long-term care for SPDs and, costs from the General Fund to counties in 2017-18. in doing so, reduce the overall costs of providing In this report we provide (1) background on care for this population that is generally expensive the health care and LTSS issues that the CCI was to serve. To achieve these goals, the CCI made intended to address, (2) an update on the CCI’s a number of changes in demonstration counties results and challenges to date, (3) an assessment of related to the delivery of care to SPDs. Although the Governor’s elimination of the CCI and budget the Governor originally proposed statewide proposal to extend certain CCI components, and expansion of CCI to all 58 counties within three (4) options for the Legislature on how to move years, the CCI was ultimately implemented in seven forward. As ending the IHSS has major, and rather demonstration counties. On a statewide basis, the complex, implications for 1991 realignment, we CCI also replaced counties’ historical share of cost include a technical appendix at the end of this for the IHSS program with a maintenance-of-effort report that provides an in-depth analysis of these (IHSS MOE) requirement. State law includes a implications. BACKGROUND Fragmented System challenges around care coordination as well as some of Care for SPDs perverse fiscal incentives. The CCI was intended to address these challenges. In this section, we describe In this section, we describe the multiple systems the multiple systems of care, the challenges resulting of care that low-income SPDs and dual eligibles from fragmentation, and how the CCI was intended must navigate to access their health care and LTSS to address these challenges. benefits. This fragmented system of care creates www.lao.ca.gov Legislative Analyst’s Office 5 2017-18 BUDGET Medicare and Medi-Cal Both Serve SPDs managed care plans. As discussed later, counties share in some nonfederal Medi-Cal costs. Medicare Is a Federal Health Coverage LTSS. In addition to the health care services Program for the Elderly. Medicare is the federal described above, Medi-Cal provides a variety health insurance program for qualifying persons of LTSS that are commonly categorized into over age 65 and certain people with disabilities, two types: (1) institutional care, such as care in and is overseen by the federal Centers for Medicare skilled nursing facilities (SNFs); and (2) home- and Medicaid Services. Medicare pays for most and community-based services (HCBS) aimed physician and hospital care and pharmacy benefits at maintaining SPDs in the community and for program beneficiaries. Medicare also covers preventing unnecessary hospitalizations and SNF certain mental health services, including outpatient stays. Major Medi-Cal LTSS include: treatment and most acute inpatient psychiatric admissions. Medicare beneficiaries generally • SNF Care. SNFs provide nursing, pay for their benefits through cost-sharing rehabilitative, and medical care to facility arrangements such as premiums, deductibles, residents. Generally, SNF residents receive coinsurance, and copayments. their medical care and social services at the Medi-Cal Is a Joint State-Federal Health facility. Coverage Program for Low-Income Californians. • IHSS. The IHSS program provides in-home Medi-Cal is a joint state-federal health care and community-based personal care program that provides health care services for for people who cannot safely remain in low-income residents, including SPDs. Medi-Cal’s their own homes without such assistance. health-related services include hospital inpatient Examples of services provided through and outpatient care, doctor visits, and coverage IHSS include assistance with such tasks as of prescription drugs and durable medical bathing, dressing, housework, and meal equipment. Medi-Cal also provides substance preparation. abuse treatment services and an array of mental health services for beneficiaries with mild and • Community-Based Adult Services serious mental illnesses. The federal government (CBAS) Program. The CBAS program and the state share the costs of the Medi-Cal is an outpatient, facility-based service program. For most Medi-Cal enrollees, including program that provides services to program SPDs, California receives a 50 percent Federal participants by a multidisciplinary staff. Medical Assistance Percentage—meaning the Services provided through CBAS include federal government pays for one-half of these professional nursing services; physical, enrollees’ Medi-Cal costs. occupational, and speech therapies; mental Counties’ Roles in Medi-Cal. Counties play a health services; therapeutic activities; major role in the Medi-Cal program, for example, social services; personal care; meals and by conducting eligibility determinations; directly nutritional counseling; and transportation providing or overseeing the delivery of certain to and from the participant’s residence. Medi-Cal benefits such as mental health and substance use disorder services; and, in some • Multipurpose Senior Services Program counties, administering their own Medi-Cal (MSSP). The MSSP benefit provides both 6 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET social and health care case management delivery system for the Medi-Cal portion of their services for Medi-Cal recipients aged 65 or health care and LTSS benefits. older who meet the eligibility criteria for a SPDs Are an Expensive Population to Serve. SNF. Generally, SPDs are much more expensive to serve than other Medi-Cal beneficiaries because Services Are Provided Through Two Main of the higher prevalence of complex medical Systems. Medi-Cal and Medicare provide health conditions and greater functional needs within this care through two main delivery systems: fee-for- population. service (FFS) and managed care. In an FFS system, Interaction Between Medicare and Medi-Cal. a health care provider receives an individual Under federal law, Medi-Cal is the payer of last payment for each medical service provided. In a resort for all covered services. This means that all managed care system, managed care plans receive other third party sources of health care and LTSS a per member per month (“capitated”) payment coverage for Medi-Cal beneficiaries, including in exchange for providing health care coverage to Medicare, must be exhausted prior to any Medi-Cal enrollees. Managed care plan capitated payments reimbursement for health care. Accordingly, cover the expected costs of their members’ covered Medicare pays for most physician, hospital, and services, which places plans at risk and provides prescription drug (pharmacy) benefits for dual an incentive for plans to discourage unnecessary eligibles, with Medi-Cal covering a smaller portion utilization of health care services. (We note that of these costs—known as “wraparound coverage.” managed care plans are required to provide all However, Medi-Cal pays for some benefits that medically necessary health care services and Medicare does not cover, such as extended stays in LTSS for which they receive payment.) For most SNFs and other LTSS. Medi-Cal beneficiaries, enrollment in managed IHSS Is County-Administered. IHSS is care is mandatory. However, for Medicare generally a Medi-Cal FFS benefit administered by beneficiaries, enrollment in managed care is county welfare agencies. Accordingly, county social voluntary. workers carry out IHSS eligibility determinations LTSS Historically a Medi-Cal FFS Benefit. and redeterminations and assess IHSS recipients LTSS have historically been delivered as Medi-Cal for their level of need for service hours. While the FFS benefits, meaning that Medi-Cal managed IHSS recipient is considered the employer of his care plans have not been paid or been responsible or her provider, counties have historically been for coordinating and delivering LTSS for their responsible for setting provider wages and benefits enrollees. through collective bargaining. Dual Eligibles Have Historically Been Exempt IHSS Funded With a Combination of Federal, From Mandatory Managed Care Enrollment. State, and Local Funds. As previously mentioned, As discussed earlier, dual eligibles are SPDs with the IHSS program is primarily delivered as a health care coverage through both Medi-Cal and Medi-Cal benefit. Accordingly, around 50 percent Medicare. While Medi-Cal-only SPDs have been of IHSS program costs are paid for by the federal mandatorily enrolled in Medi-Cal managed care government. The nonfederal costs of the IHSS since 2012, dual eligibles have historically been program are shared by the state and counties. exempt from mandatory managed care enrollment. Historically, the state paid for 65 percent of Accordingly, dual eligibles have historically been nonfederal program costs and counties paid for the able to utilize either the FFS or the managed care www.lao.ca.gov Legislative Analyst’s Office 7 2017-18 BUDGET remaining 35 percent. There are some IHSS costs often must act as their own care coordinator, or that are not shared according to the historical state- attempt to find someone who can assist them in county cost-sharing arrangement. For example, making medical appointments, determining when pursuant to state law, the state only participates they need to see a specialist, and identifying HCBS in funding IHSS provider wages and benefits up that may help them avoid unnecessary SNF stays. to $12.10 per hour, placing the responsibility on Moreover, the multiple systems of care often counties to fund 100 percent of the nonfederal costs use their own assessment tools to determine of IHSS provider wages and benefits above $12.10 LTSS eligibility and benefits levels. In addition per hour. to the social worker and beneficiary time lost Local Funds for IHSS Primarily Come From due to conducting multiple assessments of SPDs’ 1991 Realignment Revenues. In 1991, the state medical and daily-living needs, the differing enacted a major change in the state and local program assessment tools might fail to evaluate the government relationship, known as realignment. whole person’s needs and, in some cases, deliver The 1991 realignment package: (1) transferred inconsistent results. several programs from the state to the counties, No Fiscal Incentives to Reduce including indigent health, public health, and Hospitalizations . . . In addition to contributing mental health programs; (2) changed the way to a lack of coordination of services for dual state and county costs are shared for certain social eligibles, the current system creates an incentive services and health programs, including IHSS; for each program to “cost shift.” Cost shifting and (3) increased the sales tax and vehicle license occurs when one entity or program takes actions fee and dedicated these increased revenues for that have impacts—positive or negative—on a the increased financial obligations of counties. In separate entity or program. Because the impacts are the case of the IHSS program, 1991 realignment not borne by the entity taking action, that entity increased the county share of nonfederal costs has limited financial incentive to limit overall to 35 percent. For a more complete explanation costs or maximize overall benefits. For example, of 1991 realignment and revenue allocations, Medi-Cal pays for the majority of LTSS costs for particularly as regards IHSS, please see Section 1 of dual eligibles, but a relatively small portion of the the Appendix. costs of hospitalizations, which are paid primarily by the federal government under Medicare. Implications of the Fragmented System of Care Therefore, the state has limited financial incentive We outlined above the distinct systems of care to provide additional LTSS that would potentially that low-income SPDs must navigate to access their reduce hospital utilization for dual eligibles, since health care and LTSS benefits. The fragmented the savings resulting from avoided hospitalizations system of care introduces a number of challenges would largely accrue to the federal government. for the state, managed care plans, and beneficiaries, . . . Or SNF Placements. Cost-shifting is which we outline below. similarly present within Medi-Cal when different Multiple Systems of Care Result in Deficient Medi-Cal benefits are administered by different Care Coordination. SPDs, and dual eligibles in entities. For example, counties, which administer particular, generally do not have a single entity that and partially fund IHSS, do not receive any coordinates the medical services and LTSS needed financial benefit if the services they provide to maintain or improve their health status. SPDs decrease SNF and hospital utilization. This is 8 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET because, to the extent savings are achieved in SNFs enrolled in Medi-Cal managed care plans and hospitals, they are realized by the state and for their Medicare and Medi-Cal benefits federal government, not by the counties. This lack unless they made the initial choice to opt of a fiscal incentive could lead to an overutilization out. Passive enrollment began in 2014 of SNF care, which increases overall costs for the and ended in 2016. Once enrolled in a state and adversely impacts beneficiaries who prefer Cal MediConnect health plan, enrollees to stay in the community. are free to opt out in any given month and return to receiving their Medi-Cal and CCI Intended to Medicare benefits through separate systems Improve Care and Reduce Costs of care. In 2012-13, in response to concerns with the • Mandatory Enrollment of Dual fragmented system of care and misaligned financial Eligibles in Medi-Cal Managed Care. incentives described above, the state implemented The CCI requires most dual eligibles the CCI. The CCI is a joint state-federal in the seven demonstration counties to demonstration project designed to reduce the enroll in managed care plans to access fragmentation of care for Medi-Cal and Medicare their Medi-Cal benefits, including their beneficiaries, thereby improving health care and LTSS benefits. Because participation long-term care while potentially reducing Medi-Cal in Cal MediConnect is optional, dual and Medicare costs for the SPD population. eligibles mandatorily enrolled in Medi-Cal The CCI mostly made changes that apply to the managed care may continue to receive their counties participating in the demonstration project, Medicare benefits, such as doctor visits and known as the “demonstration counties.” While hospitalizations, separately. originally intended to be implemented in eight counties, seven counties ultimately participated. • Integration of LTSS Under Medi-Cal The seven CCI demonstration counties are Managed Care. In addition to authorizing Los Angeles, Orange, Riverside, San Bernardino, the duals demonstration, the CCI shifted San Diego, San Mateo, and Santa Clara. SNF, IHSS, CBAS, and MSSP benefits from Medi-Cal FFS to Medi-Cal managed care Policy Changes in Demonstration Counties for most dual eligibles and Medi-Cal-only The CCI made the following major policy SPDs. changes in the seven demonstration counties: • State-Level Collective Bargaining for IHSS • Integration of Medi-Cal and Medicare Providers. The CCI transitioned collective Benefits Under Cal MediConnect. The bargaining over IHSS provider wages and CCI enabled dual eligibles to receive benefits from the local level to the state, their Medicare benefits through the same creating an entity known as the California Medi-Cal managed care plans that provide IHSS Authority, or Statewide Authority, for their Medi-Cal benefits. This component the demonstration counties. of the CCI is known as Cal MediConnect. Initially, dual eligibles were passively • Universal Assessment. The CCI established enrolled in Cal MediConnect health a stakeholder workgroup to develop a plans, meaning they were automatically www.lao.ca.gov Legislative Analyst’s Office 9 2017-18 BUDGET universal assessment tool that would be for dual eligibles (with the exception of piloted in select counties to assess for payments for IHSS, discussed below), IHSS, CBAS, and MSSP. The workgroup which provide some incentive for the plans was tasked with building on the IHSS to encourage preventive health care and assessment process, the MSSP assessment home- and community-based LTSS in favor process, and other appropriate HCBS of hospitalizations and SNF placements assessment tools to develop a single for their members. In addition, managed assessment tool that could be used to care capitated rates for dual eligibles determine a person’s level of need for all include efficiency factors, which means the three HCBS programs. rates are reduced by certain percentages to account for savings that managed care Managed Care Rate Structures Under the plans are expected to achieve through more CCI. The CCI required a new financing structure effective management of their members’ for Medi-Cal managed care because of the health care and LTSS utilization. incorporation of new Medi-Cal and potentially Medicare benefits under Medi-Cal managed Limited Integration of IHSS Financing Under care. What was ultimately adopted were two Managed Care. Regardless of whether an SPD separate rate structures—one for Medi-Cal-only in a CCI county is enrolled in Cal MediConnect, SPDs who were required to receive LTSS through IHSS practically remained an FFS Medi-Cal benefit managed care under the CCI and the second for under the CCI. While payment for IHSS is included dual-eligibles, regardless of whether they were in Medi-Cal managed care plans’ per member per enrolled in Cal MediConnect. month payments, the IHSS payment corresponds to the costs of the service rather than as a risk-based • Managed Care Rates for Medi-Cal-Only capitated payment that places the managed care SPDs. For Medi-Cal-only SPDs in CCI plan at risk and provides an incentive for the plan counties, Medi-Cal managed care plans are to appropriately manage the benefit. Counties paid higher capitated rates that incorporate retained administrative control over the IHSS the FFS costs of their enrollees’ major LTSS. benefit—continuing to determine eligibility and Because the managed care plans are paid assess recipients for their service needs. As a result, the actual FFS costs of the long-term care managed care plans were not given authority to services (which include SNF placements) actively manage the IHSS benefit under the CCI. their enrollees utilize, they are not generally While financing did not change, increased care placed at risk for higher or lower utilization coordination between managed care plans and and therefore have limited financial incentive county welfare departments has been reported. to actively manage these LTSS benefits. Statewide Policy Change • Managed Care Rates for Dual Eligibles. The structure of managed care rates for County IHSS MOE Replaced Counties’ dual eligibles differs significantly from the Share of IHSS Program Costs. The CCI replaced structure for Medi-Cal-only SPDs receiving counties’ share of IHSS program costs (historically their LTSS benefits under Medi-Cal 35 percent of the nonfederal portion of costs) with managed care. Managed care plans are a maintenance-of-effort, known as the county paid risk-based, capitated payments IHSS MOE. Effective July 1, 2012, all counties were 10 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET required to maintain their 2011-12 expenditure discontinues all components of CCI (including levels for IHSS, to which an annual growth factor of changes in demonstration counties and the IHSS 3.5 percent was applied in subsequent years. Added MOE) if the DOF determines that the CCI does to the growth factor were any IHSS costs associated not generate net General Fund savings and is with locally negotiated IHSS wage increases. therefore not “cost-effective.” The DOF assesses The state General Fund assumed the remaining the net General Fund savings by conducting a CCI nonfederal IHSS costs. savings analysis by January 10 of every fiscal year in which the CCI is in effect. While the CCI statute Poison Pill Provision mandates the inclusion of certain components Elimination of CCI if the Demonstration Does within the CCI savings analysis, the statute Not Result in Net General Fund Savings. The CCI generally gives DOF broad discretion in estimating contains a poison pill provision that automatically the costs and savings of the CCI. CCI RESULTS AND CHALLENGES TO DATE CCI implementation began in 2012-13. The hospitalizations are, on average, so costly compared potential benefits of the CCI are more long term in to HCBS, these avoided SNF placements and nature. As such, three years of experience under hospitalizations have potentially resulted in savings the CCI is insufficient to provide a full assessment for the state and federal governments and for of the merits of the enhanced health care and LTSS managed care plans. coordination. Nevertheless, the CCI appears to be Relatively High Cal MediConnect Member achieving some initial, positive results, while also Satisfaction. A 2016 beneficiary satisfaction survey experiencing a number of challenges, both of which jointly carried out by the University of California, we outline below. Berkeley and the University of California, San Francisco compared the experiences of Some Policy Benefits Realized, Cal MediConnect members, dual eligibles who While Challenges Continue opted out of Cal MediConnect, and dual eligibles Cal MediConnect Has Shown Initial in non-CCI counties. In general, the survey Promise in Reducing Hospitalizations and shows relatively high satisfaction on the part of SNF Placements. A principal intent of the CCI Cal MediConnect members. Cal MediConnect is to improve care and reduce costs by avoiding members, for example, were more likely than unnecessary hospitalizations and SNF placements. nonmembers to know they have someone Based on analyses carried out by participating coordinating their care, to report that the quality of managed care plans, between April 2014 and their care has improved since the CCI began, and to June 2016, Cal MediConnect has helped achieve not have unmet needs for personal care assistance. reductions in hospital and SNF utilization. The survey also showed there is room for continued Managed care plans have reported making use improvement. For example, the survey identified of enhanced care coordination as well as HCBS some disruptions in the continuity of care during to help SPDs avoid unnecessary SNF stays the transition to Cal MediConnect. and hospitalizations. Because SNF stays and www.lao.ca.gov Legislative Analyst’s Office 11 2017-18 BUDGET Opt Outs From Cal MediConnect an Ongoing Since savings from the CCI depended in Challenge. Enrollment in Cal MediConnect has large part on the improved outcomes achievable fallen short of the state’s initial goals. While we through Cal MediConnect, low enrollment in estimate that over 400,000 dual eligibles live in Cal MediConnect was a factor that decreased the CCI counties and are eligible for Cal MediConnect, CCI’s potential to generate savings. Over the last only about 115,000 are enrolled. (The number of six months, the state has made efforts to streamline opt outs was significant both during and after Cal MediConnect enrollment by allowing managed the passive enrollment phase, in particular for care plans to directly enroll their members into Medi-Cal enrollees who utilize IHSS.) Moreover, Cal MediConnect, should their members choose state law excludes certain dual eligibles from to opt in. Previously, dual eligibles hoping to enroll participating in Cal MediConnect—for example, in Cal MediConnect had to take the extra step of dual eligibles living in rural areas are excluded enrolling through their managed care plan and the from participation—and caps participation in Department of Health Care Services (DHCS). The Los Angeles County to 200,000 members. These state and managed care plans are reporting that restrictions, combined with disenrollments, have streamlined enrollment has resulted in improved resulted in Cal MediConnect serving only a small Cal MediConnect enrollment. subset of the 850,000 dual eligibles who live in CCI Has Improved Collaboration Between CCI counties. Figure 1 shows the small proportion Managed Care Plans and the IHSS Program . . . of SPDs in Medi-Cal statewide who, for multiple Prior to the CCI, managed care plans had limited reasons, are enrolled in Cal MediConnect. experience with HCBS, such as IHSS. As such, it has taken time for Figure 1 these plans to develop Full Impact of CCI Limited to a relationships with LTSS Small Number of Medi‑Cal SPDs providers and understand how these programs can 2.1 million best be utilized to reduce Medi-Cal SPDs hospital and SNF costs. While coordination 1.4 million Dual Eligibles Statewide between managed care plans and IHSS program 850,000 administrators has been Dual Eligibles in CCI Counties reported as being slow 400,000 to start in the first half Dual Eligibles of the demonstration Eligible for Cal MediConnect period, considerable improvements in 115,000 Dual Eligibles in Cal MediConnect coordination between the two systems of care over the second half CCI = Coordinated Care Initiative and SPDs = seniors and persons with disabilities. of the demonstration 12 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET period have been reported. For example, at least care plans to assess recipients to determine IHSS one managed care plan has begun colocating service hours in order to allow them to better county IHSS staff at the plan to allow improved manage their financial risk for long-term care. For communication, coordination, and mutual example, plans could have used this authority to learning. Over the course of the CCI, the same immediately ramp up service hours for recipients plan reported a reduction from 120 days to 30 days who may need increased hours following a hospital in the amount of time it takes for a potential stay. There would have been trade-offs, however, recipient to receive an IHSS eligibility and service associated with a more integrated IHSS program needs assessment, aiding the managed care plan’s that were not tested under the CCI program. For efforts to ensure that HCBS are available when the example, at the time the CCI was introduced, beneficiary needs them. Other benefits that came managed care plans had very limited experience out of the improved coordination between IHSS in conducting functional need assessments county administrators and managed care plans for this type of nonmedical program, and it is under the CCI include an increase in referrals to unknown how they would have handled this new IHSS from managed care plans, suggesting better responsibility. identification of beneficiaries who could benefit IHSS MOE Has Had a Major from IHSS services. Fiscal Impact on State and Counties Moreover, as a part of the CCI, the state funded county IHSS social workers to participate in IHSS MOE Resulted in Significant New interdisciplinary care team meetings that included General Fund IHSS Costs. The IHSS MOE has had managed care plans and IHSS providers as a means a major impact on General Fund costs for the IHSS of improving care coordination for IHSS recipients’ program. Under the IHSS MOE, county costs that health care services and LTSS. As a result of these exceeded the fixed 3.5 annual growth factor (plus team meetings, some IHSS recipients experienced the cost of locally negotiated wages) were shifted an increase in authorized IHSS hours and to the General Fund. Over the five years in which expedited assessments. the IHSS MOE was in effect, the shift of IHSS costs . . . But the Benefits and Trade-Offs of a from counties to the General Fund significantly Fuller Integration Were Not Tested. As we have increased, from an initial estimated $36 million in pointed out, by design, the integration of IHSS 2012-13 to an estimated $558 million in 2016-17. as a managed care benefit was limited under the (We note that the administration is currently CCI. This is primarily because making the IHSS updating these estimates to reflect actual costs.) program a managed care benefit presents several As shown in Figure 2 (see next page), the General unique challenges due to the administrative and Fund was responsible for an increasing share of programmatic structure of IHSS. As a result, the IHSS nonfederal costs under the IHSS MOE. In CCI to date has not tested the potential merits and addition to the IHSS MOE, a number of other trade-offs of an IHSS program that is more fully factors, including state and federal policy changes, integrated within managed care. For example, have contributed to the increasing IHSS General under the CCI, county social workers continued Fund cost growth. (Please see the box on page 15 to assess IHSS recipients for eligibility and their for more information on the major drivers of recent level of need for service hours. A fuller integration increases in IHSS state costs.) would have granted more authority to managed www.lao.ca.gov Legislative Analyst’s Office 13 2017-18 BUDGET Figure 2 Increasing Use of General Fund for IHSS Program Under County IHSS MOE (Dollars in Millions) IHSS County MOE 2011‑12a 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17 2017‑18a Total IHSS Nonfederal $2,652 $2,650 $2,879 $3,220 $3,815 $4,646 $4,933 Costs General Fund 1,726 1,706 1,926 2,215 2,737 3,529 3,154 County 926 945 953 1,005 1,078 1,117 1,779 Share of Nonfederal Cost General Fund 65% 64% 67% 69% 72% 76% 64% County 35 36 33 31 28 24 36b a Reflects established state-local cost-sharing relationships for IHSS when the Coordinated Care Initiative, and thus the IHSS MOE, was not operative. b County ratio includes higher county costs related to wages and benefits above $12.10 per hour and other IHSS programmatic costs, resulting in a slightly higher county share of nonfederal costs than the statutory rate of 35 percent. Note: 2016-17 and 2017-18 reflect estimates from the 2017-18 Governor’s budget proposal. IHSS = In-Home Supportive Services and MOE = maintenance-of-effort. IHSS MOE Reduced Growth in Counties’ IHSS counties would have had to make cuts to realigned Costs. County IHSS program costs have increased social services programs and/or use local general at an average rate of around 4 percent annually fund revenues to cover the remaining IHSS costs. under the IHSS MOE. Moreover, as shown in Given these significant impacts on counties, the Figure 2, under the IHSS MOE counties paid a state likely would have taken actions to mitigate the smaller share of IHSS nonfederal costs (24 percent), effects—such as by limiting counties’ exposure to relative to the historical 35 percent of IHSS rising program costs. nonfederal costs. As a result, over the lifetime of the Under IHSS MOE, Other Realignment IHSS MOE, counties’ costs for IHSS were hundreds Programs Received Increased Funding. Due to the of millions of dollars lower than they would have IHSS MOE, much of the roughly $200 million in otherwise been under the cost-sharing ratios of realignment funding that would have supported 1991 realignment. increased IHSS costs instead went to other Absent IHSS MOE, Counties Would Have realigned programs. In particular, other social Faced Higher Costs. Historically, 1991 realignment services programs (such as Child Welfare and the revenue generally has covered counties’ costs for California Work Opportunity and Responsibility the realigned programs. Had the IHSS MOE not to Kids [CalWORKs] program), health, and mental been in place over the past five years, however, health received increased funding. In addition, counties would have had to pay the increased the state redirected a portion of the funds to IHSS costs borne by the General Fund since 2012 support CalWORKs grant increases that absent ($558 million in 2016-17). The revenue available the IHSS MOE likely would not have been feasible from 1991 realignment would have been able to within the 1991 realignment fiscal structure. (We cover about one-third—or roughly $200 million— discuss these changes and the fiscal implication of of these increased costs. To make up the difference, the IHSS MOE in greater detail in the Appendix.) 14 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Total IHSS Program Costs Have Increased Significantly in Recent Years Federal and State Policies Have Greatly Contributed to Increasing General Fund IHSS Cost Growth. Since the maintenance-of-effort (MOE) was instituted, the General Fund has borne an increasing share of In-Home Supportive Services (IHSS) program costs, growing from $1.7 billion in 2012-13 to an estimated $3.5 billion in 2016-17. In addition to the IHSS MOE, natural program caseload growth and other state and federal policies contributed to the increased growth in overall program costs and thus General Fund IHSS program costs: • Implementation of Federal Labor Regulations. In February 2016, in response to new federal labor regulations, the state implemented overtime pay and newly compensable work activities (travel time and accompaniment to medical appointments). Revised estimates indicate that the implementation of the new federal regulations represents roughly 30 percent of the growth in General Fund IHSS expenditures from 2014-15 to 2015-16. (For more information on the implementation of the new federal labor regulations for IHSS providers, see the online post, The 2017-18 Budget: Analysis of the Human Services Budget.) • Restoration of IHSS Service Hours. In 2013, the Legislature approved a 7 percent reduction in each IHSS recipient’s authorized service hours, effective July 1, 2014. In 2015-16, the Legislature provided about $240 million from the General Fund to restore service hours from the previously enacted 7 percent reduction. We estimate that the initial costs to restore IHSS service hours accounted for about one-quarter of the growth in General Fund IHSS expenditure from 2014-15 and 2015-16. • Wage Increases. IHSS provider wages generally increase in two ways—(1) increases that are collectively bargained at the local level and (2) increases that are in response IHSS-related state minimum wage increases. In 2015-16 and 2016-17, the IHSS program experienced both of these types of growth in wages. Between 2011-12 and 2014-15, the average wage for IHSS workers increased from $9.75 to $10.30 (6 percent). Between 2014-15 and 2016-17, average wages are estimated to grow from $10.30 to $11.45 (11 percent). • Caseload Increases and Increases in the Average Hours Per Case. Recent growth in caseload and hours per case have exceeded historical growth rates (about 2 percent in annual growth for the past ten years). However, although elevated, the recent average annual growth in caseload (5 percent) and hours per case (6 percent) account for less than 10 percent of the General Fund growth in IHSS costs between 2015-16 and 2016-17. Additional IHSS Cost Pressures on the Horizon. Minimum wage increases will continue to drive IHSS costs as more counties experience increased IHSS wages due to future scheduled state minimum wage increases. Additionally, the federal requirements to develop an electronic time sheet verification system by 2019 and state requirements to implement paid sick leave for IHSS providers in 2018-19 present additional cost pressures for General Fund IHSS expenditures in the out years. www.lao.ca.gov Legislative Analyst’s Office 15 2017-18 BUDGET GOVERNOR’S PROPOSAL The Governor’s 2017-18 budget terminates the Determination Automatically Ends the CCI but proposes a two-year continuation of major CCI. In accordance with state law, the DOF’s CCI components. We detail the administration’s determination that the CCI does not generate actions and CCI proposal below. Despite the net General Fund savings automatically ends the termination of the CCI, the administration has program. The administration does not need the communicated that it encourages counties and Legislature’s approval to terminate the program. managed care plans to continue to work together . . . But Proposes Continuation of to coordinate the IHSS benefit. In addition, the Major Components of the CCI administration has recognized the fiscal challenges that ending the IHSS MOE presents to counties Recognizing the merits of the policy goals and has signaled an intent to work with counties to behind the CCI, the Governor’s budget proposes mitigate these fiscal challenges. the continuation of major components of the CCI. Although budget-related legislation detailing Administration Terminates CCI the Governor’s proposal is not yet available, Pursuant to Poison Pill Provision . . . we understand that the Governor is proposing Administration Determined That the CCI the continuation of (1) Cal MediConnect, Does Not Generate Net General Fund Savings. (2) mandatory enrollment in managed care for In conjunction with the release of the Governor’s dual eligibles, and (3) integrated LTSS other than 2017-18 budget, the DOF has estimated that the IHSS under managed care. Continuation of any CCI will generate net General Fund costs of components of the CCI will require statutory $278 million in 2016-17 and $42 million in 2017-18. authorization from the Legislature. In Figure 3, we IHSS County MOE Was the Primary Factor in summarize the timeline for when the various major the Administration’s Determination. The primary components of the CCI become inoperative under reason the CCI has been determined not to result in current law given the January 2017 determination net General Fund savings is the IHSS MOE, which, by DOF that the CCI does not generate net General as we previously discussed, transferred significant Fund savings. The Governor proposes to continue cost growth in the IHSS program from counties the following major CCI components: to the General Fund. Because of the IHSS MOE, • Cal MediConnect. The Governor’s General Fund spending in 2016-17 on IHSS is budget proposes a two-year continuation almost $600 million higher than it would have of Cal MediConnect. Without this been under the former state-county cost-sharing extension, Cal MediConnect would end in rules. Savings from other components of the CCI January 2018. savings calculation did not fully offset the increases in General Fund spending resulting from the IHSS • Mandatory Enrollment of Dual Eligibles MOE (and other, less significant cost pressures in Managed Care for Their Medi-Cal under the CCI), leading to the administration’s Benefits. The Governor’s budget proposes determination that the CCI does not generate net a two-year extension of mandatory General Fund savings. enrollment in Medi-Cal managed care for dual eligibles’ Medi-Cal benefits. Without 16 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET this extension, this Figure 3 component of the Timeline of When Major CCI Policies CCI would end in Become Inoperative Under Current Lawa January 2018. January 2017 Return of responsibility for bargaining for IHSS wages and benefits to the CCI counties. • Integration of End of development of home and community-based services LTSS Other universal assessment tool. Than IHSS July 2017 Elimination of IHSS Maintenance-of-Effort and return to Under Medi-Cal historical IHSS state-county cost-sharing ratio. Managed Care. January 2018 Disenrollment of members from Cal MediConnect.b End of mandatory managed care enrollment for dual eligibles.b The Governor’s Removal of IHSS financing from managed care. budget proposes a Given the January 2017 determination by the Department of Finance that the CCI does not generate net to continue the General Fund savings. b These are elements we expect to be proposed for continuation under the Governor’s proposal. integration of CCI = Coordinated Care Initiative and IHSS = In-Home Supportive Services. LTSS other than IHSS under CCI counties reverts from the state to the Medi-Cal managed care. This would counties. Since no agreements for increased include SNF care, CBAS, and MSSP. The wages were negotiated or approved by the Governor proposes to delay the integration Statewide Authority, all IHSS bargaining of MSSP under managed care from January responsibilities have already shifted back to 2018 to January 2020. the seven CCI counties. Removal of IHSS From the CCI • End of Development of Universal Assessment Tool. Efforts to develop a By eliminating the CCI but proposing to universal assessment tool have ended. To continue certain CCI components, the Governor date, a full universal assessment tool has would effectively remove the IHSS components not been constructed or piloted, although from the demonstration. This would result in the the workgroup established by the CCI has following changes: carried out significant work in the early • Restoration of the Historical State-County development of the tool. IHSS Cost-Sharing Arrangement. As they did prior to the IHSS MOE, counties will • Elimination of Funding for Care pay 35 percent of nonfederal IHSS program Coordination. The Governor’s budget costs and the state will pay the remaining proposal eliminates funding that was 65 percent beginning July 1, 2017. The DOF provided under the CCI for IHSS social estimates that this will transfer approximately workers to participate in interdisciplinary $600 million in IHSS costs from the General team meetings that included managed Fund to the counties in 2017-18. care plans and IHSS providers. Although funding is eliminated, the administration • Termination of State-Level Bargaining has stated that it intends to “encourage” for IHSS Provider Wages and Benefits. continued coordination between managed Bargaining for IHSS wages and benefits in care plans and the IHSS program. www.lao.ca.gov Legislative Analyst’s Office 17 2017-18 BUDGET LAO ASSESSMENT OF GOVERNOR’S PROPOSAL Finding That the CCI Does Not promising strategy to reduce the programmatic Generate Net General Fund Savings costs of caring for the state’s SPDs. Determination Follows Statute. Overall, the Governor’s Proposal to Extend DOF’s methodology for determining whether Major Components of the CCI CCI generates net General Fund savings appears Integration of Health Care and LTSS Remains in line with statute and generally accounts for a Worthy Policy Goal. As the administration the full set of policy changes that were included recognizes by proposing to continue parts of in the final CCI legislative package. As we the CCI, the integration of health care and LTSS previously discussed, the CCI’s poison pill statute remains a worthy policy goal that we believe the gave the DOF fairly broad discretion to conduct state should continue to pursue. As previously the CCI savings analysis. The DOF established discussed, there are early positive signs related to a methodology for the CCI savings analysis and care coordination and potentially related reduced maintained use of the same overall methodology costs under the CCI, and more time is needed to through January 2017. As we discuss below, fully evaluate the outcomes achieved by the CCI. however, the determination that the CCI does not Proposal Will Allow Dual Eligibles to generate net General Fund savings is not indicative Maintain Joint Medi-Cal and Medicare of certain components of the CCI’s potential to Coverage Through Cal MediConnect. Based on reduce costs and/or achieve better outcomes for the our understanding, the Governor’s proposal to state’s SPDs. continue Cal MediConnect will allow the state Cost Determination Not Reflective of to continue to test the integration of Medicare Certain CCI Components’ Potential to Achieve and Medi-Cal and prevent Cal MediConnect Programmatic Savings. While the administration members from experiencing a disruption in determined that the CCI does not generate net their care. It is our understanding that without a General Fund savings, the methodology used by continuation of Cal MediConnect, dual eligibles DOF, though generally reasonable, includes factors in Cal MediConnect would be automatically that are not necessarily related to whether or not disenrolled from Medi-Cal managed care for the the integration of health care and LTSS under Medicare portion of their benefits. managed care can generate programmatic savings. Proposal Will Preserve the Financial As previously discussed, DOF included in the CCI Alignment of Medi-Cal and Medicare Under savings analysis the statewide costs associated Cal MediConnect. Cal MediConnect was with the IHSS MOE—the primary factor in DOF’s established, in part, to improve financial alignment determination that the CCI does not generate by preventing cost shifting between Medicare net General Fund savings. However, a statewide and Medi-Cal. Cost shifting can occur outside IHSS MOE is not an essential policy component of Cal MediConnect because Medicare is largely in the integration of health care and LTSS under financially responsible for health care while Medi-Cal managed care, particularly when the Medi-Cal is primarily financially responsible demonstration is limited to certain counties. As for LTSS. This results in Medicare, for example, such, integrating health care and LTSS remains a 18 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET bearing the costs but none of the benefits of if its financing is removed from managed care providing preventive health care that helps an in January 2018, consistent with the Governor’s SPD avoid SNF placements. Because, under proposal. The primary change will be that the Cal MediConnect, Medi-Cal managed care plans FFS costs of IHSS recipients’ IHSS benefits will no are financially responsible for their dual eligible longer be added to managed care plans’ monthly members’ health care and certain LTSS, the plans capitated payments before being passed on to bear the costs and benefits of preventive care counties for the full costs of administering the that reduces more costly institutionalizations. benefit. Removing IHSS financing from managed The continuation of Cal MediConnect will care does not change the fact that county welfare preserve the financial alignment created under agencies will continue to have administrative Cal MediConnect. control over IHSS. However, it is important to Integration of LTSS Under Managed Care note that some of the benefits of increased care Retains Some Promise Despite Removal of IHSS. coordination described earlier might not continue. Care in SNFs would remain a managed care benefit Elimination of the IHSS MOE for most dual eligibles and SPDs in CCI counties, as opposed to becoming a benefit that is accessed Below, we summarize the major implications through the Medi-Cal FFS delivery system. By of ending the IHSS MOE and returning to the continuing the partial integration of LTSS under historical state-county cost-sharing arrangement. managed care, managed care plans should continue We provide additional detail in Section 3 of the to gain experience in coordinating this benefit for Appendix. their members. Ending the IHSS MOE Provides Significant Proposal to Remove IHSS Financing From Relief for the General Fund While Significantly Managed Care Will Have Limited Impact on Increasing Costs for Counties. Specifically, by Recipients and Providers. Despite the CCI’s new returning to the 1991 realignment cost-sharing financing arrangement related to IHSS, IHSS ratios, counties’ 2017-18 costs for IHSS will increase effectively remained a Medi-Cal FFS benefit under by the same amount of General Fund savings (over the administrative control of county welfare $600 million). agencies. (In CCI counties, the FFS costs of 1991 Realignment Revenues Will Not Be enrollees’ IHSS benefits were added to managed Sufficient to Pay for Counties’ Increased IHSS care plans’ monthly capitated payments.) While Share of Cost. The revenues that fund counties’ there have been reports of improvements around IHSS program costs under 1991 realignment will IHSS care coordination between managed care not be sufficient to cover the increases in IHSS plans and county welfare agencies, IHSS was not county costs—creating immediate and ongoing in essence converted into a managed care benefit challenges for counties in the hundreds of millions under the CCI. (It should be noted that this of dollars. (There will be other implications of the result was by the design of the CCI authorizing increased county costs in IHSS resulting from the statute.) As a result, for most IHSS recipients in elimination of the IHSS MOE. We discuss this CCI counties, the IHSS program would generally further in Section 3 of the Appendix.) operate the same as prior to and during the CCI www.lao.ca.gov Legislative Analyst’s Office 19 2017-18 BUDGET SHOULD THE LEGISLATURE ADOPT THE GOVERNOR’S PROPOSAL? We believe that the Governor’s proposal termination of the IHSS MOE. First, we discuss to continue major components of the CCI options for the Legislature to consider in the short is appropriate. Actions taken to date toward term to mitigate county fiscal challenges in 2017-18. coordinated care and the alignment of financing for Second, we lay out options for long-term changes to health care and LTSS have been steps in the right the cost-sharing ratios. Each of these options—both in direction and, accordingly, we are supportive of the the short and long term—can be phased in in different Governor’s proposal to continue components of the ways depending on the Legislature’s priorities and CCI that can achieve these aims. counties’ ability to adjust to a new structure. Absent from the Governor’s proposal, Short-Term Considerations however, is a plan to mitigate the fiscal effects on counties resulting from the termination of the Counties’ Costs Will Increase by Hundreds IHSS MOE. The administration has signaled an of Millions of Dollars in 2017-18. As discussed intent to work with counties to provide some form earlier, returning to the 1991 realignment IHSS of relief to the fiscal challenges resulting from cost-sharing ratio shifts hundreds of millions of the elimination of the IHSS MOE. There are a dollars of costs to counties that under the IHSS number of issues for the Legislature to consider MOE were paid by the General Fund in 2016-17. in returning to the 1991 realignment cost shares. Moreover, because under 1991 realignment We outline these considerations below, and note counties are paid in arrears, the fiscal structure that the state-county fiscal relationship is worthy will not adjust for these increased costs until of reexamination, whether or not the Legislature 2018-19 (and even then, the funding will not be accepts the Governor’s proposal in whole. sufficient to fully cover counties’ increased share The Governor’s proposal also presents an of IHSS costs). Generally, the 1991 realignment opportunity to consider whether the state should structure was designed to provide counties with test a continued and potentially enhanced service- sufficient resources to cover their share of costs integration pilot. As we highlighted earlier, the for the realigned programs. Counties’ ability to CCI did not fully integrate the IHSS program absorb these additional costs for IHSS—outside of within managed care. As such, we believe the 1991 realignment fiscal structure (likely from some level of continued or enhanced service their general funds)—is limited. As a result, the integration, potentially including IHSS, is worthy of administration’s determination ending the CCI, consideration. We outline what this could look like and therefore the IHSS MOE, results in immediate, in the last section of the report. We also discuss how significant increases in county costs that will not the Legislature could consider IHSS cost sharing be covered by realignment. Absent state action, under a reenvisioned service-integration model. counties would have to reduce spending on 1991 realignment social services programs to the Fiscal Considerations extent feasible and/or provide local general fund This section discusses the fiscal issues for resources. (For more information on the 1991 the Legislature to consider in implementing the realignment fiscal structure, see the Appendix.) To 20 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET mitigate this fiscal effect on counties, we offer two State Policy Changes Have Increased Total short-term options for the Legislature to consider: IHSS Program Costs. As discussed earlier, during the time the IHSS MOE was in effect, the state • Provide One-Time General Fund Relief. made various policy decisions that increased overall The Legislature could consider providing IHSS program costs. Specifically, the state approved counties a one-time grant or loan from the increases to the minimum wage (to a scheduled $15 General Fund to cover all—or part—of the per hour over a period of several years), implemented IHSS cost increase in 2017-18. We would federal overtime provisions, and restored service note that one-time fiscal relief might not be hours that had been reduced in prior years. At the sufficient since 1991 realignment will not time of these changes, the state General Fund largely adjust for these higher costs for many years. covered these cost increases. As such, the Legislature • Provide Decreasing Levels of General may want to consider changing the cost-sharing Fund Relief Over a Few Years. Another ratio for IHSS to reflect the changes the state made option to provide some level of short-term to increase the level of cost for the program while the fiscal relief for counties would be to IHSS MOE was in place. provide General Fund support to cover Principles for Reconsidering State-County the difference between counties’ costs for Cost Sharing. When considering appropriate levels IHSS and the funding available from 1991 of state and county cost shares for programs, fiscal realignment for a few years. As the growth responsibility for a program should be matched funding available in 1991 realignment with the level of control over that program. increases, the General Fund support could Matching fiscal responsibility with the level decline. A longer transition would provide of control gives both the state and counties an the Legislature more time to consider incentive to manage costs to the extent possible. changes to the 1991 realignment structure The state (and federal government) have the (and provide counties more time to adjust majority of the control over eligibility and basic to these higher costs). service provision requirements in IHSS. Counties are tasked with administering the program because Long-Term Considerations they are well positioned to determine individual service-level needs (for example, they determine the Changes to the 1991 Realignment Structure. number of hours of care needed by beneficiaries) As discussed earlier (and in greater detail in the and can arguably provide easy access to services for Appendix), the 1991 realignment fiscal structure beneficiaries. Additionally, collective bargaining will not be able to cover the costs of returning to for wages and benefits has historically occurred at the original cost-sharing ratios for IHSS for many the county level. Thus, as has been recognized since years. Some of this shortfall is due to the changes 1991 realignment, counties should share in the made to the realignment structure during the years costs of the program, but the state should bear the the IHSS MOE was in place. Consequently, counties majority of the costs. will have to either use their general fund resources Options for Changing IHSS Cost-Sharing to pay for these increased costs and/or reduce Ratios. We believe the Legislature may want to spending on social services programs to the extent consider changing the 1991 realignment IHSS feasible. Alternatively, changes could be made to cost-sharing structure, for two reasons. First, the the cost-sharing ratios for IHSS. www.lao.ca.gov Legislative Analyst’s Office 21 2017-18 BUDGET funding provided by 1991 realignment will not schedule, the minimum wage will increase be sufficient to cover counties’ increased IHSS to $12 per hour in 2019, we recommend costs under the original cost-sharing ratio in that the Legislature change this threshold. either the short or the long term. Second, the state In our view, the wage cap should be set implemented changes to IHSS over the course of at the statewide minimum wage in any the IHSS MOE that increased costs significantly. particular year. There are various options for changing the • Reconsider Overall 1991 Realignment cost-sharing structure: Fiscal Structure. As described earlier • Increase State Share to Reflect Recent (and in greater detail in the Appendix), Policy Changes. Given the state paid the 1991 realignment fiscal structure will IHSS costs above the IHSS MOE when not generate sufficient revenue to cover the minimum wage, overtime, and counties’ share of costs for IHSS. Over service-hour policy changes were made, the past 25 years, the programs covered the Legislature could consider increasing by 1991 realignment have changed the state’s share of cost to account for these substantially. Rather than simply adjusting policy decisions. We estimate that if the the IHSS cost-sharing ratio, the Legislature Legislature took on all the costs associated may want to consider whether 1991 with the state minimum wage and federal realignment has reached the end of its overtime rules, the cost-sharing ratio for useful life. Not only is the system extremely nonfederal costs would change from 35/65 complex, but also largely is based on county/state to roughly 32/68 county/state historical caseloads that likely no longer in 2017-18. (The cost-sharing ratios would reflect counties’ needs. Fundamentally have to be adjusted as costs associated with changing the fiscal structure for these these policies increase over time.) programs could take a few years. In this case, the Legislature would want to • Remove Requirement for Counties to consider a short-term mitigation strategy Cover Wages Above $12.10. As described for counties that would account for IHSS earlier, counties are responsible for wage costs during the restructuring. costs above $12.10 per hour. Given that under the new state minimum wage SHOULD THE LEGISLATURE ENHANCE THE GOVERNOR’S PROPOSAL? The Governor’s action to eliminate the CCI discuss ways the Legislature could enhance the and proposal to extend certain CCI components Governor’s scaled-down version of the CCI, thereby presents an opportunity for the Legislature to building upon the gains that have been made under provide its vision for how health care and LTSS the CCI. should be integrated in the future. Below, we 22 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Enhance the Existing Elements managed care plans are reimbursed for the actual Of the Governor’s Proposal costs of providing SNF care to their Medi-Cal-only SPDs, rather than receiving fully risk-based Consider Ways to Improve Cal MediConnect capitated payments that provide plans an incentive Enrollment. Cal MediConnect has generated to avoid unnecessary SNF placements. The tangible benefits while also experiencing Legislature might consider directing the DHCS to challenges, particularly around enrollment. The develop a new payment methodology that places Legislature might consider ways to improve managed care plans at a higher level of risk for the enrollment in Cal MediConnect, on top of the SNF utilization of their members. This would help changes that have recently been made by the expand the gains in terms of lower SNF utilization administration to streamline Cal MediConnect that have occurred in Cal MediConnect to the enrollment. One option the Legislature might Medi-Cal-only side of the CCI demonstration. consider is introducing ongoing passive enrollment into Cal MediConnect for Medi-Cal managed care Consider the Potential for IHSS enrollees turning 65, the age they become eligible Under the CCI Going Forward for Medicare. While preserving the opportunity Because IHSS has the potential to play to opt out of Medi-Cal managed care for their a uniquely important role as a home- and Medicare benefits, this policy change would likely community-based alternative to care in an bring two significant benefits: (1) boost enrollment institutional setting such as a SNF, there are in Cal MediConnect and thereby increase potential benefits from greater coordination of the IHSS state savings and (2) improve continuity of benefit with SPDs’ other health care services care for Medi-Cal managed care enrollees who and LTSS. Accordingly, removing IHSS fully otherwise would have to take action to opt in from the CCI is problematic because it reverses to Cal MediConnect in order to avoid having to some of the improvements in care coordination begin accessing their health care from an entirely between managed care plans and county welfare new system of care (Medicare). It should be noted, departments that have been achieved under the however, that passive enrollment would require new CCI. (We again note that the administration has dual eligibles who prefer to receive their Medicare stated that it encourages continued coordination benefits separately to take action to disenroll from between managed care plans and county IHSS Medi-Cal managed care for their Medicare benefits. programs/IHSS providers, but has not proposed Alternatively, the Legislature might consider funding for such activities.) Instead, the Legislature providing funding for outreach and engagement might consider ways to maintain and build off the activities that encourage Cal MediConnect improvements in IHSS care coordination that have enrollment by outlining the benefits of coordinated occurred under the CCI. care through Cal MediConnect. Recent outreach In this section, we first describe some of efforts carried out by managed care plans are the trade-offs that the Legislature would have reported to have had a positive effect in boosting to consider should it wish to pursue greater Cal MediConnect enrollment. coordination or integration of IHSS and managed Modifications to SNF Financing for care. Second, we lay out a range of ways in which Medi-Cal-Only SPDs Might Improve Outcomes greater coordination or integration could be and Generate Savings. As previously discussed, pursued. The range includes, on one end, providing www.lao.ca.gov Legislative Analyst’s Office 23 2017-18 BUDGET funding to encourage continued IHSS coordination Moreover, the Legislature would have to between managed care plans and county welfare consider which longstanding IHSS policies and agencies. On the other end, the range includes practices should be maintained, and which IHSS testing more robust integration of IHSS under policies and practices could be allowed to change, managed care, better aligning financing and were IHSS to become a managed care benefit. For programmatic control. example, the Legislature would need to consider Carefully Consider the Trade-Offs of Fuller the level to which managed care plans would have Integration. In choosing whether and how to the authority to adopt their own policies related to enhance the coordination or integration of IHSS the IHSS utilization of their members, the scope of and managed care, there are a number of critical benefits, and recipients’ authority to hire and fire issues for the Legislature to consider at the outset. their IHSS providers. Alternatively, the Legislature These involve difficult decisions for the Legislature, could consider whether these policies should be as it must balance legislative control and oversight governed by statute. For example, IHSS recipients with the desire to give managed care plans enough are currently authorized to hire any individual control to effectively manage the IHSS benefit and who successfully completes the statutory provider their associated risk. In a nutshell, fuller integration enrollment process. Should the Legislature wish to of IHSS and managed care necessarily requires preserve this aspect of the program, it could require giving managed care plans more administrative managed care plans to do so. control while reducing counties’ control. The Align Financing Structure With Level of extent of integration deemed appropriate by County Administrative Control. As previously the Legislature would depend on the extent of discussed, programmatic control is an important the Legislature’s willingness to cede control to factor to consider in choosing a state-county managed care plans. financing structure. Accordingly, if changes to For instance, the Legislature would current law have the effect of preserving counties’ have to consider which IHSS administrative administrative role in the IHSS program, then responsibilities—such as for eligibility a county share of cost for IHSS would remain determinations and needs assessments—would appropriate. On the other hand, if the changes remain with counties and which would transfer result in a significant reduction of county to managed care plans. Should the Legislature administrative control over the IHSS program, opt for greater coordination of the IHSS benefit then replacing counties’ share of IHSS costs between county IHSS staff and managed care plans with an alternative financing structure, such as a (similar to the level of coordination that occurred maintenance-of-effort, would make sense. under the CCI), most or all IHSS administrative Provide Funding to responsibilities would remain with the counties. Encourage Coordination Between Should the Legislature choose to pursue greater Managed Care Plans and the IHSS Program integration of IHSS under managed care, many or even all IHSS administrative responsibilities As previously stated, under the CCI, the (such as eligibility determinations and needs state provided funding for IHSS social workers assessments) would come under the control of to participate in interdisciplinary care team managed care plans. As a result, greater integration meetings that included managed care plans and would significantly reduce counties’ role in IHSS. 24 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET IHSS providers. In part as a result of this care report, maintaining IHSS as a FFS Medi-Cal coordination, some IHSS recipients received benefit administered and funded (in part) by increased IHSS hours and expedited assessments counties separately from Medi-Cal managed care at the request of their managed care plans. The allows for cost shifting to occur between managed Governor’s budget proposal eliminates funding care plans—responsible for health care and SNF for participation in interdisciplinary care team care—and counties—responsible for the state’s meetings, potentially reversing these improvements principal HCBS benefit, IHSS. Integrating IHSS in care coordination that occurred under the under managed care would more fully align the CCI. Should the Legislature wish to enhance financing of institutional care and HCBS, and coordination between IHSS and managed care could encourage managed care plans to judiciously plans but not move towards fuller integration, it manage these benefits in ways that are potentially might consider continuing to fund participation beneficial both for the consumer and for federal, by IHSS social workers in interdisciplinary care state, and local finances. Because IHSS serves as a team meetings. This could preserve the improved less costly and more consumer-centered alternative communication between managed care plans and to SNF care, and because managed care plans IHSS social workers that occurred under the CCI would be responsible for paying for either IHSS and continue to enhance the coordination of health or SNF care, managed care plans would have an care and LTSS going forward. incentive to encourage appropriate utilization of IHSS in order to avoid potentially unnecessary SNF Test Fuller Integration of IHSS placements. Under Managed Care Managed Care Plans Lack Authority to As previously discussed, managed care Manage the IHSS Utilization of Their Members, plans participating in the CCI were not put at Limiting Coordination Potential. As previously direct financial risk for the IHSS utilization of discussed, county welfare agencies remained their members nor were they given authority to responsible for carrying out IHSS needs determine their members’ level of IHSS utilization. assessments under the CCI. However, a greater In practice, IHSS remained a Medi-Cal FFS benefit role in the IHSS assessment process would allow administered separately from managed care. This managed care plans to better coordinate IHSS was largely due to the difficult choices that would with the other health care and LTSS benefits for have had to have been made in order to facilitate which they are responsible. For example, with an the integration of IHSS within managed care. increased role, plans could have greater authority As a result, the state has not had a meaningful to ramp up IHSS hours immediately following opportunity to test what IHSS would look like as a member’s discharge from the hospital when a managed care benefit. Below, we summarize two they might want to closely monitor the member’s of the primary rationales for greater integration of recovery. Following the member’s recovery, IHSS under managed care. We then lay out how the they could then reduce IHSS hours accordingly. Legislature could consider implementing various Under the CCI, plans did not have the ability to levels of IHSS integration. directly alter hours in this manner. (Plans did Potential for Cost Shifting Remained Under work with county social workers to initiate IHSS CCI. As we discussed in the background of this reassessments after changes in beneficiaries’ health status.) www.lao.ca.gov Legislative Analyst’s Office 25 2017-18 BUDGET Granting managed care plans a greater role Legislature might consider what oversight in IHSS assessments could be done in a way that and evaluation requirements would be makes the referral and assessment process more needed to ensure that the managed IHSS streamlined and standardized. For example, benefit is delivered in a manner consistent managed care plans could conduct IHSS needs with the state’s chosen standards for assessments themselves. Alternatively, requirements the IHSS program. Accordingly, the could be established that standardize the process Legislature might consider establishing by which managed care plans refer their members robust reporting requirements on DHCS to the IHSS program for an assessment or and managed care plans to allow state reassessment. For example, new rules (and funding policymakers to know the fiscal and for counties) could be established that require a programmatic impacts of fuller integration needs assessment or reassessment to occur within a of IHSS under managed care. time period following a request by a managed care • Full Integration of IHSS Into Managed plan. This latter requirement could help ensure that Care Would Require New Financing an IHSS assessment occurs quickly in response to Structure. Should the Legislature decide to the transition of an SPD back to the community pilot full integration of IHSS in managed from placement at a SNF, allowing IHSS services to care, pilot counties’ realignment IHSS be quickly established and thereby helping to ensure funding would need to shift to managed a successful transition back to the community. care plans to cover a share of the capitated Consider Testing Fuller Integration of IHSS rate. Because these funds were originally Under Managed Care in Certain CCI Counties. provided to counties to pay their share of The Legislature could consider testing fuller IHSS costs, shifting the costs to managed integration of IHSS under managed care. The care plans would require shifting these Legislature might select one or more managed funds as well. The Legislature also would care plans to participate in an IHSS integration need to consider what share of future pilot based on the plan’s successful experience realignment funds should be allocated to coordinating LTSS benefits under the CCI and the the managed care plans moving forward. local county welfare agency’s desire to participate in an integration pilot. Fuller integration would Shared Control of IHSS Between Counties and entail (1) giving managed care plans a significant Managed Care Plans Would Also Require a New level of authority to manage the benefit and Financing Structure. If the Legislature decides (2) paying plans risk-based, capitated payments not to pursue full integration of IHSS in managed that incorporate the IHSS benefit. Under a test of care plans, but instead pilots an integration model fuller integration of IHSS under managed care, in which counties and managed care plans share the Legislature might consider (1) how to provide control over the administration of IHSS, an oversight of and evaluate the pilot and (2) what the alternative financing structure to the one presented state and county IHSS financing responsibilities above for a full integration would need to be should be, both of which we describe below. considered. As previously stated, IHSS cost-sharing ratios should reflect the level of programmatic • Establish Robust Oversight of Fuller control granted to counties. If managed care IHSS Integration Under Managed Care. plans have an increased role in administering In testing an IHSS integration pilot, the 26 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET IHSS, counties would have less control over the for shared responsibilities between counties and IHSS program and costs than they have today. managed care plans could include a modified IHSS An alternative financing structure that accounts MOE or reducing counties’ share of IHSS costs. CONCLUSION The Governor’s budget proposes to continue IHSS integration in a CCI pilot. These could many of the beneficial programmatic aspects of range from providing some level of funding for the CCI. The proposal, however, does not address continued care coordination between managed care the fiscal impact to counties that results from plans and counties to piloting a fuller integration returning to the 1991 realignment cost-sharing of IHSS within managed care in some counties. ratios for IHSS. Consequently, the Legislature may Depending on the level of IHSS integration within want to consider how to mitigate the increased managed care plans, there are various trade-offs costs to counties both in the short and long term. and financing considerations that would need to be Moreover, the Legislature may want to build on the considered. Governor’s budget by considering ways to include www.lao.ca.gov Legislative Analyst’s Office 27 2017-18 BUDGET 28 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET APPENDIX: HOW ENDING THE IHSS MOE AFFECTS 1991 REALIGNMENT This Appendix is divided into three sections. the base reflects the funding the realigned The first section outlines 1991 realignment today. programs received in the prior year. The second section explains how recent actions • Step Two: Sales Tax Growth to the have modified that structure. The third section Caseload and Social Services Subaccounts. discusses how the Governor’s termination of Growth in sales tax revenue funds prior-year the Coordinated Care Initiative (CCI)—and by increases in county costs for the Social extension the In-Home Supportive Services (IHSS) Services Subaccount programs (through the Maintenance-of-Effort (IHSS MOE)—affects the Caseload Subaccount). fiscal components of 1991 realignment. Section 1: • Step Three: Growth to County Medical 1991 Realignment Today Services Program (CMSP). A portion of the remaining sales tax growth (if any) and In 1991, the state enacted a major change in the growth in the VLF goes to the CMSP, the state and local government relationship, known which then is allocated to the Health as realignment. The 1991 realignment package: Subaccount. (The proportion of sales tax (1) transferred several programs from the state and VLF growth allocated to CMSP is to the counties, including indigent health, public based on formulas set in statute.) health, and mental health programs; (2) changed the way state and county costs are shared for certain • Step Four: General Growth. The remaining social services and health programs termed the growth from the sales tax (if any) and “Social Services Subaccount programs” (IHSS, VLF is allocated to the General Growth California Children’s Services, welfare-to-work Subaccount. Of the funds allocated to the programs, and child welfare programs); and General Growth Subaccount, 18 percent (3) increased the sales tax and vehicle license fee goes to the Health Subaccount, roughly (VLF) and dedicated these increased revenues for 40 percent goes to the Mental Health the increased financial obligations of counties. Since Subaccount, and the remainder goes to the establishing 1991 realignment, the state has made a Child Poverty and Family Supplemental number of changes to the funding structure, which Support Subaccount (hereafter the Child we discuss in more detail in the next section. Poverty Subaccount). How the Funds Flow Today. Figure 1 (see In some years, the growth in sales tax revenue is next page) shows how funds flow under 1991 not sufficient to fully fund changes in county costs realignment today: for social services programs through the Caseload • Step One: Fund the Base. Sales tax and Social Services Subaccounts (Step Two). As and VLF revenues dedicated to 1991 a result, in those years, counties do not receive realignment fund the “base.” Generally, sufficient funding through 1991 realignment to www.lao.ca.gov Legislative Analyst’s Office 29 2017-18 BUDGET cover the growth in costs for those programs. Those the cost growth in the Caseload and Social Services unmet county costs are carried forward to the next Subaccounts equal or exceed the amount of sales year and any sales tax growth first goes to pay off tax growth, the Health, Mental Health, and Child that balance before paying any new growth. When Poverty Subaccounts receive growth only from VLF. Figure 1 1991 Realignment Today Local Revenue Fund Revenue Collection VLF Growth Sales Tax Growth Base VLF Revenues Base Sales Tax Revenues Revenue 1 Allocation 2 Social Services Caseload Subaccount Subaccount 3 Health CMSP Subaccount Subaccount Remaining 18% Growth Family Support Subaccount 4 Mental Health General Growth About 40% Subaccount Subaccount $1.1 Billiona Sales Tax Growth About 40% CalWORKs MOE Subaccount Sales Tax Growth, Child Poverty and Family if Available, and Supplemental Support Subaccount VLF Growth a Funds transferred to the CalWORKs MOE Subaccount are provided from 2011 realignment funds. VLF = vehicle license fee; CMSP = County Medical Services Program; and MOE = maintenance of effort. 30 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Section 2: receive base and growth funding through How We Got Here 2011 realignment to support this increased fiscal responsibility. This section describes some of the recent changes to the 1991 realignment structure that got • California Work Opportunity and us to where we are today. Responsibility to Kids (CalWORKs) MOE 2011 Realignment. The Legislature again Subaccount. The 2011 realignment allocates enacted a major change in the state and local to each county’s 1991 Mental Health government relationship in 2011 by shifting Subaccount funding totaling $1.1 billion additional state program responsibilities and statewide (this amount does not change). This revenues to local governments (primarily counties). funding then is shifted to the CalWORKs As with 1991 realignment, 2011 realignment MOE Subaccount, which offsets General provides dedicated sales tax and VLF revenues to Fund costs for CalWORKs grants. This support increased county fiscal responsibility for change did not affect overall CalWORKs various criminal justice, mental health, and health funding or 1991 realignment programs. and social services programs. The 2011 realignment 2012 Changes to IHSS. In 2012, as part of the affected 1991 realignment in three ways: CCI, the state made several major changes to IHSS, • Child Welfare Services. Prior to the 2011 including the creation of a county IHSS MOE realignment, the 1991 realignment Social requirement. Specifically, counties previously paid Services Subaccount supported counties’ 35 percent of nonfederal IHSS program costs, using share of child welfare services costs, while 1991 realignment revenues for the vast majority of the state was responsible for the remaining those costs. The county IHSS MOE established in nonfederal share. The 2011 realignment 2012 replaced this 35 percent share of costs with shifted most of the remaining nonfederal a requirement that counties generally maintain share of cost from the state to the counties. their 2011-12 expenditure levels for IHSS beginning Counties receive base and growth funding in 2012-13, to be adjusted annually by roughly through 2011 realignment to support this 3.5 percent beginning in 2014-15 (plus any locally increased fiscal responsibility. This funding negotiated wage growth). Although the county grows largely based on historical growth IHSS MOE continued to be funded from 1991 in the programs. As a result, child welfare realignment revenues, county costs grew more services is funded by a combination of 1991 slowly under the IHSS MOE than under the prior and 2011 realignments. funding arrangement because IHSS program grew faster than the IHSS MOE adjustment. As a result, • Mental Health/Behavioral Health. Under counties’ costs for IHSS were hundreds of millions the 1991 realignment, counties were given of dollars lower than under the cost-sharing fiscal responsibility for a portion of mental ratios of 1991 realignment over the course of the health services. The 2011 realignment gave IHSS MOE. This made more revenues available for counties additional fiscal responsibilities other programs “downstream” of IHSS because for behavioral health, which includes some less realignment revenue growth was needed in the programs that overlap with previously Caseload Subaccount to satisfy county IHSS costs realigned mental health services. Counties in the Social Services Subaccount. www.lao.ca.gov Legislative Analyst’s Office 31 2017-18 BUDGET 2013 Changes to General Growth Allocation. health costs have declined. In recognition of Under prior law, the additional General Growth these savings, the state requires counties to shift funds made available by the creation of the IHSS a portion of their Health Subaccount funding MOE would have been distributed across all to the Family Support Subaccount. The funds in downstream 1991 realignment programs based on the Family Support Subaccount are used to offset historical formulas. However, the 2013-14 budget General Fund costs for CalWORKs grants in each package made several changes to the allocation of county. General Growth. These changes partially were in 2016 Maximum Family Grant (MFG) Rule response to two factors: (1) the IHSS MOE reduced Repeal. The 2016-17 budget package repealed the counties’ costs thereby reducing the pressure on MFG rule, which prevented families’ CalWORKs the Caseload and Social Services Subaccounts; assistance from increasing to reflect the birth of a and (2) the Patient Protection and Affordable child after ten months of continuous assistance. (In Care Act (ACA) reduced counties’ indigent health general, larger families receive larger CalWORKs responsibilities. Specifically, the share of General grant amounts to reflect greater basic needs, such Growth allocated to the Health Subaccount was that a family affected by the MFG policy receives cut by roughly two-thirds (to roughly 18 percent), less assistance than it would if the child had been General Growth to the Social Services Subaccount born before ten months of continuous assistance.) was eliminated, and remaining General Growth The 2016-17 budget package directed that the costs was allocated to the newly created Child Poverty of repealing the MFG rule be paid from the Child Subaccount. Poverty Subaccount to the extent that funds are Under current law, funds in the Child Poverty available. Because the costs of repealing the MFG Subaccount are used to pay for the costs of periodic rule exceed available Child Poverty Subaccount new grant increases in CalWORKs as funds in the funds, the General Fund is covering a portion of Subaccount grow. In the event that Subaccount the costs of the repeal. In future years, the General funds are insufficient to cover the costs of prior Fund contributions will decrease as Child Poverty grant increases, state law requires the General Fund Subaccount funds grow. to make up the difference until Subaccount funds Section 3: grow to fully cover the costs of the prior increases. Impacts of Ending the While the Subaccount funds are insufficient, no IHSS MOE on 1991 Realignment grant increases are provided from the Subaccount under current law. This section describes the impacts of ending 2013 Creation of New Subaccount. In addition the IHSS MOE on 1991 Realignment. We to the changes to the General Growth allocation, summarize these effects in Figure 2. the 2013-14 budget package created the Family Ending CCI Terminates IHSS MOE. As Support Subaccount. Prior to the optional ACA described earlier, the 2012-13 budget package Medi-Cal expansion, counties largely were established the CCI and IHSS MOE. When the responsible for indigent health care. Counties paid IHSS MOE was established, the enacting legislation for these costs with health realignment funds. maintained the counties’ share of IHSS cost under Under the ACA expansion, Medi-Cal covers many 1991 realignment, but established the MOE in lieu of the individuals for whom the counties previously of that share during the demonstration project. had been responsible. As a result, counties’ indigent In the subsequent year’s budget package, the CCI 32 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET cost-savings calculation was established making the cost increases borne by counties in 2017-18. As IHSS MOE contingent on the whether the CCI yielded described earlier, when the growth in sales tax net General Fund savings. With the determination revenue is insufficient to cover year-to-year growth by the DOF that the CCI no longer yields net General in program costs, the difference is carried over to Fund savings, the IHSS MOE ends. the next year. Because we do not expect sales tax IHSS Cost-Sharing Ratio Returns to growth to be sufficient to cover the increased costs 1991 Realignment Split. Statute directs the in the Social Services Subaccount for many years, cost-sharing ratio for IHSS to revert to the 1991 the outstanding balance for county realignment realignment shares with the end of CCI. As prior cost increases could be in the hundreds of millions to the IHSS MOE, counties will pay 35 percent of of dollars through 2020. nonfederal program costs and the state will pay the Other 1991 Realignment Programs Will Not remaining 65 percent. Receive Sales Tax Growth. Due to the increased Funding Increases for Social Services Lagged. costs in IHSS, likely no sales tax growth will be By returning to the 1991 realignment cost-sharing available for programs downstream of the Social ratios, counties’ costs for IHSS will increase Services and Caseload Subaccounts for many significantly in 2017-18. Growth funding provided years. These other programs (including the Health, to the Social Services Subaccount (through the Mental Health, and Child Poverty Subaccounts) Caseload Subaccount, which includes IHSS) is will continue to receive growth from increases calculated in arrears, however. As a result, counties in the VLF; however, total growth to these will not receive funding through 1991 realignment programs will be lower than it would have been for these increased costs until 2019-20—creating if the IHSS MOE had remained in place. Starting short- and medium-term funding challenges in 2018-19 (due to the lagged caseload growth for counties. (The administration estimates the calculation), we expect General Growth to these counties’ statewide costs to increase by over programs to be roughly half—or tens of millions $600 million in 2017-18.) of dollars less than—what it would have been had 1991 Realignment Funding Will Not Be the MOE remained in place. (Child welfare, which Sufficient to Cover Increased IHSS Costs. We is in the Social Services Subaccount and receives estimate that the 2018-19 sales tax growth—which funding from both 1991 and 2011 realignments, will be paid to counties in 2019-20—only will cover will continue to receive growth through 2011 roughly one-fifth of the Social Services Subaccount realignment but not 1991 realignment.) Figure 2 Effects of Governor’s Action to End the IHSS MOE 9 Social Services Subaccount Costs Will Increase Substantially 9 Outstanding Balance to Counties Could Be in the Hundreds of Millions of Dollars by 2020 9 General Fund Costs for Maximum Family Grant Rule Repeal Could Increase by Tens of Millions of Dollars 9 CalWORKs Grants May Not Receive Additional Increases for Many Years IHSS = In-Home Supportive Services and MOE = maintenance of effort. www.lao.ca.gov Legislative Analyst’s Office 33 2017-18 BUDGET General Fund Costs in the Tens of Millions; Absent IHSS MOE, Counties Likely Would Additional CalWORKs Grant Increases Have Faced Similar IHSS Cost Growth. Had the Delayed. As described above, the state uses state not implemented the IHSS MOE, counties three subaccounts to pay for CalWORKs grants would have paid 35 percent of the increased costs—the CalWORKs MOE Subaccount, the nonfederal costs in IHSS over the past several Child Poverty Subaccount, and the Family Support years. Under this scenario, the Caseload and Subaccount. Because the CalWORKs MOE Social Services Subaccounts would have taken subaccount is supported by 2011 realignment much larger shares—potentially all—of the sales revenues, it is unaffected by the termination of the tax growth each year. As a result, CMSP and the IHSS MOE. Lower growth in 1991 realignment, subaccounts receiving General Growth (Health, however, could erode some of the savings in the Mental Health, and Child Poverty Subaccounts) other subaccounts. In particular, lower General would have received less, if any, sales tax growth. Growth for the Child Poverty Subaccount will Moreover, with IHSS requiring such a large share mean that General Fund spending to pay for the of the realignment growth funding, the state likely MFG rule repeal will be higher than it otherwise would not have made the changes to the General would have been, likely in the tens of millions of Growth allocation or have established the Child dollars annually in the next few years. By extension, Poverty Subaccount. The state also might have this means that it will take longer than previously made different choices with regard to minimum estimated for the Child Poverty Subaccount to wage increases and federal overtime requirements support these increases and the Subaccount will if counties had been responsible for a larger share of not be able to support new grant increases for many those costs at the time. years. 34 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET www.lao.ca.gov Legislative Analyst’s Office 35 2017-18 BUDGET LAO Publications This report was prepared by Ben Johnson, Jackie Barocio, and Carolyn Chu, and reviewed by Mark C. Newton. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 36 Legislative Analyst’s Office www.lao.ca.gov