The 2017-18 Budget: Analysis of the Medi-Cal Budget

The 2017-18 Budget: Analysis of the Medi-Cal Budget MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • MARCH 9, 2017 2017-18 BUDGET 2 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET EXECUTIVE SUMMARY The Governor’s budget proposes $19.1 billion General Fund for Medi-Cal. This is a decrease of $430 million—or 2 percent—below the estimated 2016-17 General Fund spending level. Total Medi-Cal spending (all funds) is proposed to increase by $2.6 billion between 2016-17 and 2017-18— from $100 billion to $102.6 billion. This increase in total spending is primarily due to higher special fund spending. Current-Year Spending Reflects Two Major Upward Adjustments. Estimated 2016-17 General Fund spending in Medi-Cal has been adjusted upward by $1.8 billion. This adjustment reflects two major factors: (1) a miscalculation of the costs and savings associated with the Coordinated Care Initiative and (2) a one-time General Fund cost increase due to the payment of prescription drug rebates owed to the federal government that, while budgeted in 2015-16, was not paid in that fiscal year and thus remained owing and was paid in 2016-17. Budget-Year Spending Reflects Several Factors. Year-over-year changes in total Medi-Cal spending and in the program’s funding mix reflect several factors, including: (1) nearly $700 million in higher state costs for the Patient Protection and Affordable Care Act (ACA) optional expansion population; (2) around $535 million in higher projected General Fund spending based on the administration’s assumption of less federal Children’s Health Insurance Program (CHIP) funding in 2017-18; and (3) significant growth in state special fund spending, including new Proposition 56 tobacco excise tax revenues dedicated to Medi-Cal. Governor’s Caseload Projections Appear Reasonable. The Governor’s budget estimates Medi-Cal caseload of 14 million for 2016-17, a 5 percent increase over the caseload estimate of 13.4 million for 2015-16. The budget projects a Medi-Cal caseload of 14.3 million for 2017-18, an increase of 2 percent over the 2016-17 caseload. We find the administration’s Medi-Cal caseload estimates to be reasonable, though subject to some uncertainty particularly regarding the ACA optional expansion caseload. If this component of the Medi-Cal caseload grows at a higher or lower rate than the administration currently projects, state spending could be higher or lower in 2016-17 and/or 2017-18 by tens of millions of dollars. Proposed Transition of New Qualified Immigrants (NQIs) to Covered California Raises Issues for Legislative Consideration. Legislation enacted in 2013 requires NQIs eligible for full-scope Medi-Cal as a result of the ACA optional expansion to transition from the state-only Medi-Cal program into subsidized coverage through the state’s Health Benefit Exchange—Covered California—with a Medi-Cal “wrap.” (This transition has been delayed to January 1, 2018.) The Governor’s budget proposes to shift additional NQIs (that is, NQIs in addition to those whose eligibility for state-only Medi-Cal was triggered by the ACA optional expansion) into Covered California with a Medi-Cal wrap starting January 1, 2018. The administration suggests the budget proposal will protect these additional NQIs from potential tax penalties under the ACA. We find that the Governor’s budget proposal could generate General Fund savings from the additional federal funding for additional NQIs, and is consistent with the concept driving the 2013 legislation. www.lao.ca.gov Legislative Analyst’s Office 3 2017-18 BUDGET We provide the Legislature with several issues to consider based on what action it takes on the proposal. If the Legislature approves the proposal, there are implementation challenges to be addressed. In this case, the Legislature should consider requiring (1) regular reporting by the administration on progress toward implementing the transition and (2) the Department of Health Care Services to provide guidance on how NQIs would be reenrolled in health insurance coverage should Covered California become inoperative. If the Legislature rejects the proposal, the Legislature might also consider whether or not to continue the planned transition under the 2013 legislation. Governor’s Federal CHIP Funding Assumption Reasonable, Though Uncertain. The Governor’s budget assumes CHIP funding is reauthorized in federal fiscal year 2017-18, but at a 65 percent federal medical assistance percentage (FMAP) in California instead of the 88 percent FMAP authorized by the ACA. We find the Governor’s approach to budgeting CHIP funding is reasonable given the uncertainty around congressional action. Across the range of potential actions Congress may take on CHIP funding, the Governor’s budget assumes a middle-of-the-road scenario. Take No Issue With Governor’s Proposed Abolition of the Major Risk Medical Insurance Fund (MRMIF). The Governor’s budget proposes to abolish MRMIF and transfer its fund balance and any ongoing revenue from the Managed Care Administrative Fines and Penalties Fund into a newly created Health Care Services Plans and Penalties Fund, which will fund ongoing Medi-Cal services. We find the Governor’s budget proposal on MRMIF to be reasonable, particularly given the high remaining MRMIF balance that is likely to go substantially unused for many years. 4 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET OVERVIEW The Governor’s budget proposes $19.1 billion associated with the Coordinated Care General Fund for Medi-Cal. This is a decrease of Initiative (CCI). (We address the $430 million—or 2 percent—below the estimated Governor’s CCI-related actions and budget 2016-17 General Fund spending level. While proposals in a separate report, The 2017-18 proposed General Fund Medi-Cal spending is Budget: The Coordinated Care Initiative: A lower in 2017-18 than 2016-17, other nonfederal Critical Juncture.) Medi-Cal spending (which includes funding from • A one-time General Fund cost increase of state special funds as well as some local Medi-Cal nearly $500 million due to the payment of funding) is over $3 billion—or 22 percent—higher funds owed to the federal government that in 2017-18 than 2016-17. Proposed federal Medi-Cal was not budgeted in the 2016-17 Budget Act. spending of about $67 billion is essentially flat (This payment was budgeted in 2015-16 between the two fiscal years. Total Medi-Cal but was not paid in that year as intended.) spending is proposed to increase by $2.6 billion These funds related to prescription drug between 2016-17 and 2017-18—from $100 billion rebates for individuals who are newly to $102.6 billion. Figure 1 shows the increase in eligible for Medi-Cal under the Patient Medi-Cal spending from 2007-08 through 2017-18 Protection and Affordable Care Act (ACA) by funding source. As indicated by Figure 1, federal optional expansion. funds and state and local funding sources other than the General Fund account for the vast Figure 1 majority of long-term Medi-Cal Spending 2007-08 Through 2017-18 expenditure growth in (In Billions) Medi-Cal. Current-Year $120 Adjustments. Estimated 2016-17 General Fund 100 Other Nonfederal Funds spending in Medi-Cal General Fund reflects two major 80 Federal Funds upward adjustments that are one-time in nature: 60 • A net increase in General Fund 40 costs—totaling $1.4 billion— 20 due to a miscalculation of the costs 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18a and savings a Proposed. www.lao.ca.gov Legislative Analyst’s Office 5 2017-18 BUDGET Budget-Year Changes. Year-over-year changes (2) managed care organization tax in total Medi-Cal spending and in the program’s revenues, and (3) hospital quality assurance funding mix reflect the following major factors: fee revenues. Together, these three special fund sources account for about $1.9 billion • $700 million in higher state costs for the of the $2.6 billion increase in total ACA optional expansion population. These Medi-Cal spending between 2016-17 and higher state costs are primarily a result of 2017-18. the state’s share of costs for this population increasing in accordance with federal law We would note that some budget solutions from an effective 2.5 percent to an effective proposed by the administration were not 5.5 percent between 2016-17 and 2017-18. incorporated into the bottom-line spending (While changes in the state’s cost share estimates of the Governor’s Medi-Cal budget. for this population are on a calendar-year These include proposals to delay shifting services basis under the ACA, we have translated for California Children’s Services eligible children the costs here to a state fiscal-year basis.) from fee-for-service (FFS) into managed care under We note that a sizable portion of these the Whole Child Model and to delay providing increased state costs are proposed to be palliative care services to eligible Medi-Cal paid with Proposition 56 revenues. beneficiaries. These proposed delays are projected to reduce General Fund costs by $21 million in • Around $535 million in higher projected 2017-18 below what is currently budgeted for General Fund spending based on the Medi-Cal. administration’s assumption that less We would also note that there is substantial federal Children’s Health Insurance federal uncertainty about the future of the ACA. Program (CHIP) funding will be In projecting Medi-Cal spending in 2017-18, the appropriated in 2017-18 compared to Governor’s budget generally assumes existing 2016-17. federal and state law. The one major exception • Nearly $140 million in General Fund involves CHIP. The Governor’s budget assumes spending to support implementation of that enhanced federal funding for CHIP will the Drug Medi-Cal Organized Delivery continue beyond the date to which Congress has System Waiver, a joint federal-state-county appropriated funding (September 30, 2017), but demonstration project aimed at providing at a lower federal cost share, known as the federal a full continuum of substance use disorder medical assistance percentage (FMAP). This services—from residential treatment to assumption increases projected state Medi-Cal outpatient services—to Medi-Cal enrollees spending in 2017-18 by a significant amount. We in the 16 participating counties. address the general uncertainty around the future of the ACA and the potential fiscal implications • Significant growth in state special fund for the state in a separate report, The Uncertain spending in Medi-Cal in 2017-18 compared Affordable Care Act Landscape: What It Means for to 2016-17. The three major sources of California. higher special fund spending in Medi-Cal In this report, we provide an analysis of the in 2017-18 are (1) Proposition 56 tobacco administration’s caseload projections, including excise tax revenues dedicated to Medi-Cal, a discussion of the projected increases in ACA 6 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET optional expansion caseload. We also provide an proposal to shift additional New Qualified assessment of several aforementioned major factors Immigrants (NQIs) to Covered California in affecting projected changes in Medi-Cal spending 2017-18, assumptions around federal CHIP in 2017-18 and other policy changes proposed by funding, and the proposed abolition and transfer of the administration. These include the Governor’s the Major Risk Medical Insurance Fund (MRMIF). proposed uses of Proposition 56 revenues, the BACKGROUND In California, the federal-state Medicaid the state’s CHIP. Currently, the federal government program is administered by the Department of pays 88 percent of the costs for children enrolled in Health Care Services (DHCS) as the California CHIP and the state pays 12 percent. Finally, under Medical Assistance Program (Medi-Cal). the ACA, the federal government paid 100 percent Medi-Cal is by far the largest state-administered of the costs of providing health care services to health services program in terms of annual the newly eligible Medi-Cal population from 2014 caseload and expenditures. As a joint federal-state through 2016. Beginning in 2017, the federal cost program, federal funds are available to the state share decreased to 95 percent, phasing down to for the provision of health care services for most 90 percent by 2020 and thereafter. low-income persons. Until recently, Medi-Cal Delivery Systems. There are two main eligibility was mainly restricted to low-income Medi-Cal systems for the delivery of medical families with children, seniors and persons with services: FFS and managed care. In a FFS system, a disabilities (SPDs), and pregnant women. As part health care provider receives an individual payment of the ACA, beginning January 1, 2014, the state from DHCS for each medical service delivered to expanded Medi-Cal eligibility to include additional a beneficiary. Beneficiaries in Medi-Cal FFS may low-income populations—primarily childless adults generally obtain services from any provider who who did not previously qualify for the program. has agreed to accept Medi-Cal FFS payments. In Financing. The costs of the Medicaid program managed care, DHCS contracts with managed are generally shared between states and the federal care plans, also known as health maintenance government based on a set formula. The federal organizations, to provide health care coverage for government’s contribution toward reimbursement Medi-Cal beneficiaries. Managed care enrollees for Medicaid expenditures is known as federal may obtain services from providers who accept financial participation. The share of Medicaid costs payments from the managed care plan, also paid by the federal government is known as the known as a plan’s “provider network.” The plans FMAP. are reimbursed on a “capitated” basis with a For most families and children, SPDs, and predetermined amount per person, per month pregnant women, California generally receives regardless of the number of services an individual a 50 percent FMAP—meaning the federal receives. Medi-Cal managed care plans provide government pays one-half of Medi-Cal costs for enrollees with most Medi-Cal covered health these populations. However, a subset of children care services—including hospital, physician, with higher incomes qualify for Medi-Cal as part of and pharmacy services—and are responsible www.lao.ca.gov Legislative Analyst’s Office 7 2017-18 BUDGET for ensuring enrollees are able to access covered • Two-Plan. In the 14 Two-Plan counties, health services in a timely manner. (In some there are two managed care plans available counties, Medi-Cal managed care plans also to beneficiaries. One plan is run by the provide long-term services and supports, including county and the second plan is run by a institutional care in skilled nursing facilities, and commercial health plan. home- and community-based services.) Managed • Geographic Managed Care (GMC). In care enrollment is mandatory for most Medi-Cal GMC counties, there are several enrollees, meaning these enrollees must access commercial health plans available most of their Medi-Cal benefits through the to beneficiaries. There are two managed care delivery system. As a result, in GMC counties—San Diego and 2017-18 nearly 80 percent of Medi-Cal enrollees are Sacramento. projected to be enrolled in managed care. The number and type of managed care plans • Regional. Finally, in the Regional model, available vary by county, depending on the model there are two commercial health plans of managed care implemented in each county. available to beneficiaries across 18 counties. Counties can generally be grouped into four main Imperial and San Benito Counties have models of managed care: managed care plans that are not run by the county, • County Organized Health System and that do not fit into one of these four models. In (COHS). In the 22 COHS counties, there Imperial County, there are two commercial health is one county-run managed care plan plans available to beneficiaries and in San Benito, available to beneficiaries. there is one commercial health plan available to beneficiaries. GOVERNOR’S BUDGET CASELOAD PROJECTIONS According to the Medi-Cal Eligibility Data stabilize during 2017-18. The budget also assumes System, there were over 13.5 million people modest underlying enrollment growth within the enrolled in Medi-Cal as of June 2016. This count families and children, and SPD populations. includes over 3.3 million enrollees—mostly Historical Trends. Figure 2 displays over a childless adults—who became newly eligible for decade of observed and estimated caseload for Medi-Cal under the ACA optional expansion. each major category of enrollment in Medi-Cal, A substantial number of families and children beginning with (1) historical caseload through who were previously eligible—known as the ACA 2014-15, followed by (2) the administration’s mandatory expansion—are also assumed to have revised estimate for caseload in 2015-16, and (3) the enrolled as a result of eligibility simplification, Governor’s budget projections for 2016-17 and enhanced outreach, and other provisions and 2017-18. While SPD enrollment grew steadily at effects of the ACA. The Governor’s budget assumes about 2 percent annually throughout the historical that following a large influx of enrollees in 2015-16 period, the families and children caseload grew at and 2016-17, ACA-related caseload levels will an average rate of about 4 percent between 2007-08 8 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET and 2010-11 (the onset Figure 2 of the Great Recession Budget Forecasts Medi-Cal Caseload to Exceed 14 Million through the sluggish Average Monthly Enrollees (In Millions) phase of the recovery). The further uptick in 16 families and children in 14 2013-14 reflects the shift of the Healthy Families 12 Program to Medi-Cal. ACA Optional Expansion Further growth in the 10 families and children 8 population after 2013-14 largely reflects the Seniors and Persons With Disabilities 6 impact of the ACA. Caseload 4 Projections in Families and Childrena 2 Governor’s Budget. The Governor’s budget 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 assumes an average Estimated Projected monthly Medi-Cal a caseload of 14 million Includes certain refugees, undocumented immigrants, and hospital presumptive eligibility enrollees. These estimates represent LAO aggregation of various enrollee categories, and may not parallel for 2016-17. This is a DHCS’ categorization. 5 percent increase over ACA = Patient Protection and Affordable Care Act and DHCS = Department of Health Care Services. the revised caseload estimate of 13.4 million administration’s caseload projections in the context for 2015-16. This significant year-over-year increase of the substantial ACA-related changes to the reflects, at least in part, continued growth related Medi-Cal caseload in recent years, and we find the to the ACA. The budget assumes total annual estimates to be reasonable. We note, however, these Medi-Cal caseload of 14.3 million for 2017-18, an ACA-related changes have made it more difficult increase of 2 percent over the 2016-17 caseload. to project caseload. We discuss, in particular, (This 2 percent annual growth is in line with the growth in ACA optional expansion caseload historical Medi-Cal caseload growth predating the in more detail in the next section. Further, if we ACA.) Of the 14.3 million beneficiaries, 4.1 million receive additional information that causes us to enrollees are projected to have gained eligibility change our assessment of the caseload projections through the ACA optional expansion. in the Governor’s budget, we will provide the Administration’s Caseload Projections Legislature with an updated analysis at the time of Appear Reasonable. We have reviewed the the May Revision. www.lao.ca.gov Legislative Analyst’s Office 9 2017-18 BUDGET CONTINUED UNCERTAINTY IN PROJECTING ACA OPTIONAL EXPANSION CASELOAD GROWTH ACA Expanded Medicaid Eligibility to the state must pay 10 percent of this population’s Low-Income, Childless Adults. Before the ACA, Medi-Cal costs. Figure 3 summarizes the federal Medi-Cal eligibility was generally restricted to government’s share of Medi-Cal costs for the ACA families and SPDs with incomes below 108 percent optional expansion by state fiscal year from 2013-14 of the federal poverty level (FPL). Accordingly, through 2020-21. In 2016-17, the state is responsible childless adults under age 65 were ineligible for for paying 2.5 percent of the ACA optional Medi-Cal regardless of income. The ACA expanded expansion population’s Medi-Cal costs. In 2017-18, eligibility for Medi-Cal to individuals under age the state share increases to 5.5 percent. 65 (children, parents, and childless adults) with State’s ACA Optional Expansion Costs household incomes at or below 138 percent of FPL. Projected to Increase by 75 Percent in 2017-18. The The population who became eligible for Medi-Cal administration estimates the state’s costs for the under the ACA is known as the ACA optional ACA optional expansion population to be almost expansion population. $900 million in 2016-17 and to be nearly $1.6 billion Administration Assumes Strong Growth in in 2017-18. The $700 million year-over-year change ACA Optional Expansion Caseload in 2016-17. is primarily the result of the state’s share of costs The administration projects that the ACA for this population increasing in accordance with optional expansion caseload will continue to grow federal law from an effective 2.5 percent to an significantly from its 2015-16 level, particularly effective 5.5 percent between 2016-17 and 2017-18. in 2016-17. Between 2015-16 and 2016-17, average Total ACA Optional Expansion Spending monthly caseload for the ACA optional expansion Projected to Decrease in 2017-18. While state population is projected to grow by 15 percent— costs for the ACA optional expansion are expected from under 3.5 million to nearly 4 million. In to significantly increase between 2016-17 and 2017-18, the administration projects that ACA Figure 3 growth will significantly taper off, increasing Federal Share of Costs for average monthly ACA optional expansion caseload ACA Optional Expansion Population to a little over 4 million, or a 3 percent rate of increase. This is more in line with other Medi-Cal State Fiscal Year FMAPa populations’ caseload growth trends. 2013-14 100.0% 2014-15 100.0 State Became Responsible for a Share of 2015-16 100.0 ACA Optional Expansion Costs in 2017. The 2016-17 97.5 federal government paid 100 percent of the costs 2017-18 94.5 2018-19 93.5 of the Medi-Cal ACA optional expansion through 2019-20 91.5 calendar year 2016. Beginning in 2017, the state 2020-21 90.0 became responsible for a 5 percent share of the a Determines federal share of costs for covered services in state Medicaid programs. We note that the FMAP for the ACA optional ACA optional expansion’s costs. The state’s share expansion population is stated in the ACA statute on a calendar-year basis. We have translated the FMAP to a state fiscal-year basis. of ACA optional expansion costs will gradually ACA = Patient Protection and Affordable Care Act and increase on an annual basis until 2020, when FMAP = federal medical assistance percentage. 10 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET 2017-18, total spending (which includes state and an important role in the continued growth of the federal spending) on the ACA optional expansion ACA optional expansion caseload relates to the is projected to decline by over $1 billion over this population in California that is eligible through the same time period. There are a number of factors ACA optional expansion but has not enrolled in explaining this year-over-year decline. The most Medi-Cal. Given the high ACA optional expansion significant one involves retroactive recoupments caseload growth of recent years, a higher proportion of past-year capitated managed care payments that of California’s eligible population has already Medi-Cal made on behalf of the ACA optional enrolled. Continued growth in the ACA optional expansion population. Managed care plans’ costs expansion will depend to a significant degree on the of providing care to ACA optional expansion extent to which individuals who are eligible, but not adults have been lower than their previous years’ enrolled, elect to sign up for Medi-Cal, as well as the capitated payments reflect. As a result, Medi-Cal speed with which they do so. is recouping a portion of the capitated payments As we would expect, DHCS has estimated that it made to managed care plans in previous slower annual rates of caseload growth for this years. Retroactive recoupments from managed population. While the number of new potential care plans are expected to be almost $700 million ACA optional expansion enrollees is smaller higher in 2017-18 compared to 2016-17. Because the than in previous years, there remains uncertainty federal government paid 100 percent of the costs around whether the ACA optional expansion of the ACA optional expansion during the time for caseload will grow at faster or slower rates in either which managed care payments are being recouped, 2016-17 or 2017-18 than DHCS currently projects. all of the recoupments will remit to the federal Analysis Will Be Updated at May Revision. government and have the effect of reducing federal Assumptions around the growth of the ACA Medi-Cal spending in 2016-17 and even more in optional expansion caseload have fiscal 2017-18. implications for the state beginning in 2016-17 as a result of the state beginning to share in LAO Assessment of Governor’s ACA the Medi-Cal costs of this population. As such, Optional Expansion Caseload Projections projected state Medi-Cal spending on the ACA Projecting the Growth of ACA Optional optional expansion could be higher or lower in Expansion Caseload Involves Some Uncertainty. 2016-17 and/or 2017-18 by tens of millions of The ACA has brought significant uncertainty dollars. We will provide the Legislature an updated to projecting Medi-Cal caseloads due in part to analysis of DHCS’ ACA optional expansion the ACA’s expansion of Medi-Cal eligibility to caseload projections at the May Revision when previously ineligible populations. A factor that plays additional caseload trend data arrives. PROPOSED USE OF PROPOSITION 56 REVENUES In this section, we describe the Governor’s general assessment of the Governor’s proposed uses proposed uses of revenues from Proposition 56, of Proposition 56 revenues, beyond just Medi-Cal, which raised state taxes on tobacco products, in our report, The 2017-18 Budget: An Overview of within the Medi-Cal program. We provide a the Governor’s Proposition 56 Proposals. www.lao.ca.gov Legislative Analyst’s Office 11 2017-18 BUDGET Background and 2017-18. Absent Proposition 56 funding, either the General Fund or other allowable special fund Proposition 56 Raised Tobacco Excise Taxes. revenues would have to be used to pay for these Proposition 56 increased the state’s excise tax state Medi-Cal spending increases. We describe the on cigarettes and other tobacco products, now use of Proposition 56 revenues in Medi-Cal in more including electronic cigarettes, beginning April 1, detail below. Under the Governor’s proposal, the 2017. The administration projects that the new majority of Proposition 56 Medi-Cal revenue would tobacco taxes will raise $368 million in 2016-17 and be spent within the managed care delivery system. $1.4 billion in 2017-18. Overall State Spending in Medi-Cal Is Higher Proposition 56 Directs Majority of Revenues in 2017-18, While General Fund Spending Is to Medi-Cal. Revenues from the new tobacco Lower. While the administration does not reduce taxes are deposited directly into a new special overall state funding for Medi-Cal as a result of the fund and then distributed to state departments for Proposition 56 revenues, General Fund Medi-Cal use in various state programs. Among other uses, spending is lower in 2017-18 than 2016-17. This Proposition 56 directs revenues from the new taxes reflects that higher special fund revenues from to state programs related to tobacco cessation, the managed care organization tax, the hospital physician training, and Medi-Cal. After directing quality assurance fee, and other non-Proposition 56 select amounts of Proposition 56 revenues to sources more than offset the lower General Fund various prescribed purposes, the measure dedicates Medi-Cal spending in 2017-18. 82 percent of remaining revenues to Medi-Cal. The Administration’s Approach to Proposition 56’s measure restricts Proposition 56 revenues from Non-Supplantation Requirement for Medi-Cal. supplanting existing General Fund support for As previously stated, Proposition 56 does not Medi-Cal. allow Proposition 56 revenues to supplant existing Governor’s Proposal General Fund spending for the Medi-Cal program. The administration interprets “existing General Over $1.3 Billion to Medi-Cal to Cover Fund spending” as the amount of General Fund Anticipated Program Spending Increases. As spending in Medi-Cal as of the 2016-17 Budget required by the measure, the Governor’s budget Act. While projected Medi-Cal General Fund allocates the bulk of the Proposition 56 revenues spending in 2017-18 is lower than the revised raised through the end of 2017-18 (five quarters estimate of 2016-17 Medi-Cal General Fund of revenues) to Medi-Cal. (Of the $1.3 billion in spending (due to the one-time factors discussed revenues, about $1.2 billion would be spent in earlier), it is over $1 billion higher than the Medi-Cal in 2017-18 and the remainder would be General Fund appropriation for Medi-Cal in spent in 2018-19 due to Medi-Cal’s accounting the 2016-17 Budget Act. Since projected 2017-18 structure.) The Governor’s budget does not propose Medi-Cal General Fund spending is higher than using Proposition 56 revenues to pay for new policy the 2016-17 Medi-Cal General Fund appropriation, changes in the Medi-Cal program, such as higher the administration believes its proposed uses of provider rates. Instead, under the Governor’s Proposition 56 revenues in Medi-Cal are consistent proposal, Proposition 56 revenues would largely with the non-supplantation requirement of support anticipated spending increases due to the measure. We provide an assessment of the growth in the Medi-Cal program between 2016-17 12 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET administration’s interpretation of Proposition 56’s government’s costs for Medicare Part D. Medicare non-supplantation requirement in a separate Part D transferred certain Medi-Cal prescription report: The 2017-18 Budget: An Overview of the drug costs from the state to the federal government. Governor’s Proposition 56 Proposals. In that report, For taking on these costs, the federal government we contrast the Governor’s interpretation of required state Medicaid programs to pay back to non-supplantation to an alternative interpretation the federal government a portion of their savings that “existing General Fund spending” means resulting from the establishment of Medicare the ongoing amount of General Fund needed to Part D. fund Medi-Cal absent any policy changes to the Remainder of Proposition 56 Revenues Funds program. We find it uncertain how a court would Managed Care. The Governor proposes to spend decide any legal challenge brought against the the remainder of Medi-Cal Proposition 56 funding state related to Proposition 56’s non-supplantation within Medi-Cal managed care. This funding requirements for Medi-Cal. Finally, we suggest that would support various increased costs in 2017-18 the Legislature must make its own determination compared to 2016-17, including increased costs on how to appropriate Proposition 56 revenues in associated with higher utilization of Hepatitis C Medi-Cal given the measure’s non-supplantation medications, caseload increases, and annual requirements. growth in managed care plans’ capitated rates. Large Portion of Proposition 56 Revenues LAO Assessment Pay for State’s Increased Share of Cost for ACA Optional Expansion. Under the Governor’s Spending of Medi-Cal’s Proposition 56 proposal, a sizable portion of Proposition 56 Revenues on New Policy Changes Could Require funding in Medi-Cal would pay for the state’s Spending Cuts Elsewhere. As discussed, the increased share of cost for the ACA optional Governor’s budget proposes using Proposition 56 expansion. As previously discussed, the state’s share revenues to support anticipated spending increases of costs for the ACA optional expansion increases in the Medi-Cal program. The Governor does not from an effective 2.5 percent to an effective propose any new policy changes, such as increases 5.5 percent between 2016-17 and 2017-18. The to Medi-Cal provider payments, funded with state’s increased share of costs amounts to almost Proposition 56 revenues. Should the Legislature $700 million in additional state spending for the wish to divert some or all Proposition 56 revenues ACA optional expansion in 2017-18 compared to to support new policy changes, the Legislature 2016-17. Thus, much of Medi-Cal’s Proposition 56 would need to allocate up to an additional revenues supplant federal Medi-Cal funding rather $1.2 billion in 2017-18 from the General Fund than state Medi-Cal funding. to Medi-Cal to pay for the costs Proposition 56 Significant Portion of Proposition 56 Revenues covers under the Governor’s proposal. Under the Paid to Medicare. The Governor proposes using Governor’s revenue estimates, doing so could over $300 million of Proposition 56 revenues require reductions to other programs or smaller to support increased payments to the federal budget reserves. Should the revenue estimates be government for Medicare. Most of this funding higher in May, however, the Legislature would have would pay for increased payments that Medi-Cal more flexibility to allocate additional revenues to makes to Medicare to offset a portion of the federal Medi-Cal. www.lao.ca.gov Legislative Analyst’s Office 13 2017-18 BUDGET PROPOSED TRANSITION OF NEW QUALIFIED IMMIGRANTS TO COVERED CALIFORNIA Background of these NQI adults are currently enrolled in the state-only Medi-Cal program for NQIs. Federal Law Bars Most Legal Noncitizens ACA’s Individual Mandate Applies to NQIs. From Receiving Full-Scope Medicaid for Five The ACA requires—with some exemptions— Years. Under the federal Personal Responsibility individuals to enroll in health insurance coverage and Work Opportunity Reconciliation Act of 1996 that meets certain minimum quality standards (PRWORA), most legal noncitizens cannot receive (otherwise known as “minimum essential full federal financial participation for full-scope coverage,” or MEC) or pay a tax penalty. This Medicaid services for five years after arriving in individual mandate also applies to NQIs. the United States. Legal noncitizens are generally NQIs Qualify for Premium Subsidies and defined by federal law as those immigrants who Cost-Sharing Reductions Through Covered are lawfully admitted to the United States. States California. While NQIs currently receive their receive federal funding to partially pay for the health care coverage through the state-only provision of limited-scope Medicaid services—such Medi-Cal program, NQIs are also eligible for as emergency medical services and pregnancy- federal premium subsidies and cost-sharing related services—for all legal noncitizens during reductions to purchase coverage through a Health the five-year bar. Benefit Exchange. The California Health Benefit State Law Extends Full-Scope Medi-Cal to Exchange, also known as Covered California, is Legal Noncitizens During the Five-Year Bar. an online health insurance marketplace where Under PRWORA, states can choose to use their individuals are able to enroll in subsidized and own funds to provide legal noncitizens with unsubsidized coverage. Individuals with certain full-scope Medicaid services during the five-year incomes qualify for federal tax credits to purchase bar. (States that provide full-scope Medicaid coverage, known as premium subsidies. Some services to legal noncitizens still receive federal of those individuals with lower incomes also funding to partially pay for limited-scope Medicaid have their out-of-pocket costs reduced by federal services.) California chose to create a state-only payments to health insurers, known as cost-sharing Medi-Cal program to cover legal noncitizens who reductions. would be eligible for full-scope Medicaid but for Current State Law Requires Shift of ACA their immigration status, individuals referred to as Optional Expansion NQIs Into Covered California “new qualified immigrants” or NQIs. With a Medi-Cal Wrap. California passed ACA Optional Expansion Triggered Increase legislation in 2013 that, in addition to conforming in the Number of NQI Adults Eligible for state law to several ACA regulations, required that Medi-Cal. A number of NQI adults—primarily NQIs eligible for full-scope Medi-Cal as a result childless adults present in the United States for less of the ACA optional expansion transition from than five years—became eligible for Medi-Cal as the state-only Medi-Cal program into subsidized a result of the ACA optional expansion. We refer coverage through Covered California with a to these individuals as ACA optional expansion Medi-Cal “wrap.” The Medi-Cal wrap would NQIs. The Governor’s budget estimates that 63,000 14 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET cover any benefits, premiums, or cost-sharing that originally authorized the transition—are not covered by these NQIs’ subsidized coverage individuals eligible for Medi-Cal under the through Covered California. Those eligible for the pre-ACA eligibility rules. Primarily, they are transition to Covered California with a Medi-Cal parents or caretaker relatives of minor children. wrap must purchase coverage through Covered An estimated 20,700 individuals would be affected California or would only qualify for limited-scope by this change, bringing the total amount of NQIs Medi-Cal services thereafter. The legislation is transitioning to Covered California to 83,700. (NQI intended to leverage federal funding for premium pregnant women, and NQIs under age 21 or over subsidies and cost-sharing reductions available to age 64, who would otherwise be eligible for this NQIs, while maintaining the level of care provided transition, are exempt from this proposal because to NQIs through Medi-Cal. By shifting ACA their coverage is generally already certified as optional expansion NQIs into Covered California MEC.) with a Medi-Cal wrap, the state expects to save Budget Does Not Provide an Estimate $48 million General Fund in 2017-18. (Given the of General Fund Savings From Proposal. As transition is effective January 1, 2018, General Fund previously noted, the Governor’s budget estimates savings in 2017-18 from the transition represent the state will save $48 million General Fund in approximately half of the savings in a full fiscal 2017-18 from the transition of the ACA optional year.) expansion NQIs into Covered California pursuant State’s Implementation of the Shift Delayed. to the 2013 legislation discussed previously. The The legislation discussed above was originally budget, however, does not provide an estimate effective January 1, 2014. The development of new of the General Fund savings for the additional state information technology systems delayed 20,700 NQIs who would transition into Covered the implementation of the program into 2016. California under this proposal. By the time of The Legislature subsequently approved a further the Governor’s May Revision, the administration one-year delay in the implementation of the expects to provide an estimate of General Fund program—from January 1, 2017 to January 1, savings for this population. 2018—because of concerns about disruptions and Administration’s Rationale for Budget delays in ACA optional expansion NQIs accessing Proposal. The administration suggests the budget coverage and about the administrative complexities proposal will protect the additional NQIs from of the program. potential tax penalties under the ACA. The state-only Medi-Cal program for nonpregnant, Budget Proposal nonelderly NQI adults is not formally certified by Budget Proposes to Shift Additional NQIs the Centers for Medicare and Medicaid Services Into Covered California With a Medi-Cal (CMS) as MEC. Individuals are required to Wrap. The Governor’s budget proposes to shift maintain MEC to avoid tax penalties under the additional NQIs (that is, NQIs in addition to ACA’s individual mandate. If the additional NQIs those whose eligibility for state-only Medi-Cal remain in the state-only Medi-Cal program, they was triggered by the ACA optional expansion) could be subject to tax penalties. By transitioning into Covered California with a Medi-Cal wrap the additional NQIs into Covered California with a starting January 1, 2018. These additional Medi-Cal wrap—coverage which would be formally NQIs—not included in the state’s 2013 legislation certified as MEC—the administration argues the www.lao.ca.gov Legislative Analyst’s Office 15 2017-18 BUDGET additional NQIs would be protected from these tax For these reasons, the budget proposal’s transition penalties. (We again note that nearly all remaining of additional NQIs also has merit. NQIs in the state-only Medi-Cal program—such . . . But Administration’s Rationale for as NQI pregnant women—already have MEC and Budget Proposal Related to Avoidance of Tax are exempt from this proposal.) The administration Penalties Is Uncertain. In addition to the fiscal also acknowledges the additional General Fund and policy rationale for the 2013 legislation, the savings from these NQIs receiving federal funding administration provides another rationale for for premium subsidies and cost-sharing reductions this proposal: to protect the additional NQIs through Covered California. from potential tax penalties under the ACA. It is Proposed Trailer Bill Language Would Limit uncertain whether or not NQIs are paying, or could Choice of Covered California Health Plans. in the future pay, tax penalties because the coverage Proposed trailer bill language implementing the they receive through the state-only Medi-Cal Governor’s budget proposal would also limit the program is not formally certified as MEC. To date, number of health insurance coverage options DHCS is unaware whether or not any NQI enrolled available to transitioning NQIs to two lower-priced in Medi-Cal has paid a tax penalty. health plans. The administration’s rationale for Joint Enrollment of NQIs in Covered limiting the number of health plans is to limit the California Health Plans and Medi-Cal Is Complex differences in plan premiums and cost-sharing for Agencies and Health Plans to Administer. amounts, thereby reducing the complexity of the We note that there are several administrative program for Covered California and DHCS. complexities for federal and state agencies, as well as for health plans through Covered California, to Assessment address in implementing the transition of NQIs— Budget Proposal Would Leverage Additional both pursuant to the 2013 legislation and the Federal Funding for Additional NQIs . . . The Governor’s budget proposal—to Covered California administration’s budget proposal to transition coverage with a Medi-Cal wrap: additional NQIs from the state-only Medi-Cal • To enroll NQIs in Covered California program into Covered California with a Medi-Cal health plans and in the Medi-Cal wrap, a wrap would leverage additional federal funding for variety of federal and state agencies must premium subsidies and cost-sharing reductions that first approve the health plans. Like other would be available to these additional NQIs through health plans offered through Covered Covered California. While the exact amount of California, health insurers must file plan General Fund savings for this population is not documents with CMS, Covered California, known at this time, the potential savings from and either the California Department of this proposal could be in the low tens of millions Managed Health Care or the California of dollars annually. The Legislature approved the Department of Insurance (depending on concept of a transition of ACA optional expansion the insurance product). DHCS also must NQIs into Covered California in 2013 primarily to work with Covered California to obtain achieve General Fund savings from the additional approval from CMS for the health plans federal funding available to these NQIs, while because of the Medi-Cal wrap. Final maintaining the level of care that is provided to approval of the health plans could extend NQIs through the state-only Medi-Cal program. beyond January 1, 2018. 16 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET • There are also a number of ways health outline congressional procedures—such as the insurers could structure the Covered federal budget reconciliation process—that could California health plans around the federal be used to facilitate the repeal of major components premium subsidies and cost-sharing of the ACA, including federal funding for premium reductions for NQIs. No matter how subsidies and cost-sharing reductions through health plans are structured, federal and state Health Benefit Exchanges. Proposed trailer state agencies will need to develop new bill language implementing this budget proposal administrative processes for the program. does make the transition of any NQI into Covered Developing those processes could also California inoperative should federal funding for extend beyond January 1, 2018. state Health Benefit Exchanges be eliminated. If NQIs were transitioned under the Governor’s • Program regulations will also need to be budget proposal into Covered California prior to it developed by the administration. Proposed becoming inoperative, however, these individuals trailer bill language would extend the might have to be reenrolled in Medi-Cal or an deadline for those regulations from July 1, alternative form of coverage. This issue would also 2017 to July 1, 2020 (that is, beyond the apply to NQIs transitioning to Covered California scheduled January 1, 2018 implementation under the 2013 legislation. date). The emergency rulemaking process could be used prior to 2018 to implement Issues for Legislative Consideration this transition. The Governor’s budget proposal could Any of these administrative complexities could generate additional General Fund savings from delay the full implementation of the Governor’s increased federal funding for the additional budget proposal—as well as the transition of NQIs, and is consistent with the concept driving NQIs authorized in the 2013 legislation—beyond the 2013 legislation. It therefore warrants serious January 1, 2018. Such delays would reduce General consideration by the Legislature. We provide the Fund savings otherwise resulting from the Legislature with several issues to consider based on transition of NQIs into Covered California. what action the Legislature takes on the proposal. Significant Federal Uncertainty About the If Legislature Approves the Proposal, Future of the ACA, Including the Federal Funding There Are Implementation Challenges to Be for NQIs Obtaining Subsidized Coverage Through Addressed. If the Legislature approves the Covered California. When the Legislature proposal, it might consider directing DHCS authorized the transition of ACA optional to expedite the development and approval of expansion NQIs into Covered California with a Covered California health plans for all NQIs, Medi-Cal wrap in 2013, there was little federal including NQIs transitioning to Covered California uncertainty about the future of the ACA. By under the 2013 legislation. Any delays in the contrast, the current federal administration and development and approval of the health plans congressional majority have stated their intent to also delays the implementation of the transition, make major changes to the ACA. We discuss the reducing General Fund savings. The Legislature uncertain future of the ACA in a separate report— might also consider directing relevant agencies, The Uncertain Affordable Care Act Landscape: with input from insurers, to regularly report to What It Means for California. In our report, we the Legislature on how they are addressing the www.lao.ca.gov Legislative Analyst’s Office 17 2017-18 BUDGET administrative complexities of the transition. California—the Legislature might also consider Regular reporting could help the Legislature assess whether or not to continue the planned transition whether implementation of the transition is on under the 2013 legislation of ACA optional schedule, or whether additional legislative action expansion NQIs into Covered California coverage is necessary. The Legislature might also consider with a Medi-Cal wrap. This is because any concerns requesting DHCS to report on how many NQIs about the transition proposed under the Governor’s have been, or currently are, subject to tax penalties budget are likely also to apply to the planned under the ACA. Lastly, the Legislature might transition under the 2013 legislation. consider directing DHCS to establish procedures We note that if the Legislature decides to for reenrolling NQIs in the state-only Medi-Cal repeal the authorized transition of ACA optional program should federal funding for state Health expansion-triggered NQIs into Covered California Benefit Exchanges be eliminated. Clear guidance coverage, the Legislature might also consider from DHCS on how NQIs would be reenrolled directing DHCS to apply for CMS to certify the in health insurance coverage—should Covered state-only Medi-Cal program for NQIs as MEC. California become inoperative—could address CMS approval of the state-only Medi-Cal program potential concerns from NQIs and stakeholders for NQIs would protect these Medi-Cal enrollees about disruptions and delays in obtaining coverage. from potential tax penalties under the ACA. There For all of these implementation issues for additional would be a fiscal trade-off, however, with this NQIs transitioning to Covered California, the action, as General Fund costs would increase by Legislature could address similar issues for ACA an estimated $100 million annually because NQIs optional expansion NQIs. would no longer qualify for premium subsidies If Legislature Rejects the Proposal, the and cost-sharing reductions through Covered 2013 Legislation Should Also Be Reconsidered. California. We understand that under current If the Legislature rejects the proposal—for federal law, such disqualification from federal example, because of legislative concerns about the assistance through Covered California would be federal uncertainty around premium subsidies permanent. and cost-sharing reductions through Covered CHIP FUNDING Background Medicaid-expansion CHIP). California transitioned from providing CHIP coverage through its stand- CHIP Provides Health Insurance to alone Healthy Families Program to providing Low-Income Children. CHIP is a joint federal-state CHIP coverage through Medi-Cal. With this program that provides health insurance coverage transition, completed in the fall of 2013, Medi-Cal to children in low-income families, but with generally provides coverage to children in families incomes too high to qualify for Medicaid. States with incomes up to 266 percent of the FPL. Some have the option to use federal CHIP funds to create infants in families with incomes up to 322 percent a stand-alone CHIP program or to expand their of FPL may also be eligible for Medi-Cal. DHCS Medicaid programs to include children in families estimates that there will be over 1.3 million with higher incomes (commonly referred to as children enrolled in CHIP coverage in 2017-18. 18 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET FMAP for CHIP Is Traditionally Higher of FPL (which is referred to as the “federal Than for Medicaid. Traditionally, the federal minimum standard”). Previously, children between government provides an enhanced FMAP for the ages of 6 and 19 with family incomes between CHIP health insurance coverage in California 108 percent and 138 percent of the FPL could relative to the Medicaid FMAP of 50 percent. The be covered through states’ CHIP programs. The historical FMAP for the CHIP population has federal government currently pays the higher CHIP been 65 percent, although this has been further FMAP (currently 65 percent in California) for this enhanced by the ACA, as discussed below. population. States will be required to continue CHIP Funding Is Capped. Unlike Medi-Cal, providing Medicaid coverage to this population at CHIP is not an entitlement program. States receive the lower Medicaid matching rate (50 percent in annual allotments of CHIP funding based on California) if CHIP funding runs out. historic CHIP spending. A change in a state’s ACA Maintenance-of-Effort (MOE) CHIP FMAP also changes the state’s annual Requirements for CHIP and Medicaid. Under allotment. Generally, states receive allotments that an ACA MOE provision, states are required to are sufficient to cover the federal share of CHIP maintain their March 23, 2010 Medicaid and expenditures for the full year. If a state does not CHIP eligibility levels for children through the end spend its full annual allotment in the given year, of FFY 2018-19. The implications of these MOE the state may continue to draw down unspent requirements are uncertain for California because funds in the next year. the state transitioned from a stand-alone CHIP program to a Medicaid-expansion CHIP program The ACA and CHIP after March 2010. The CMS will need to clarify ACA Authorized an Increased FMAP for the implications of the ACA MOE requirements CHIP, but Congress Has Only Appropriated for California if Congress does not appropriate Funding Through Federal Fiscal Year (FFY) additional CHIP funding through FFY 2018-19. 2016-17. Beginning in FFY 2015-16, the ACA Budget Proposal authorized an increased FMAP for CHIP through FFY 2018-19. (An FFY runs from Budget Assumes Federal Funding for October 1 through September 30.) Under the CHIP Is Authorized at Traditional FMAP. The ACA, California’s CHIP FMAP increased from Governor’s budget assumes CHIP funding is 65 percent to 88 percent. The ability of California reauthorized in FFY 2017-18, but at a 65 percent to draw down federal CHIP funds at this higher FMAP in California instead of the 88 percent FMAP, however, is dependent on Congress’ FMAP authorized by the ACA. At this lower decision regarding the appropriation of funding FMAP, DHCS estimates the state will spend an for CHIP beyond FFY 2016-17, as Congress has additional $535 million (mostly General Fund) in only appropriated funding for CHIP through 2017-18 (relative to what it would have spent at the FFY 2016-17. The implications of this for ACA-enhanced FMAP of 88 percent). Given that California’s budget are discussed further below. Congress has not appropriated funds for CHIP ACA Required Part of CHIP Population to beyond FFY 2016-17, the amount of CHIP funding, Be Covered Through Medicaid. Under the ACA, if any, allotted to California for FFY 2017-18 is states must provide Medicaid coverage to children uncertain. It is certain that California will remain up to age 19 with family incomes up to 138 percent at the 88 percent FMAP from July 1, 2017 through www.lao.ca.gov Legislative Analyst’s Office 19 2017-18 BUDGET September 30, 2017, because this three-month range of potential actions Congress may take on period overlaps with FFY 2016-17. The CHIP CHIP funding, the Governor’s budget assumes a funding for the rest of 2017-18 is less certain and middle-of-the-road scenario. However, as discussed could have a significant impact on the state’s above, federal CHIP funds available to California budget. in 2017-18 could be significantly more or less than Congress’ Decision on CHIP Funding Could assumed in the Governor’s budget, depending on Result in Higher or Lower General Fund Costs in the action ultimately taken by Congress. Medi-Cal Budget. The decision Congress makes regarding appropriations of CHIP funding Figure 4 beyond FFY 2016-17 Potential Congressional Actions on has implications for the CHIP Funding Beyond FFY 2016-17 state’s General Fund Change in 2017-18 General Fund Spending in Medi-Cal spending in Medi-Cal. (Relative to Governor’s Figure 4 summarizes three Scenario FMAPa Budget Assumptions) potential congressional No new CHIP funds appropriated 50 percentb $350 million increasec actions that could be taken New CHIP funds appropriated at 65 percent No change traditional FMAP on CHIP funding beyond New CHIP funds appropriated at 88 percent $535 million decreased FFY 2016-17. ACA-enhanced FMAP LAO Assessment. The a FMAP is the percentage of state Medicaid costs paid by the federal government. b Governor’s approach to Assumes state would continue to provide Medi-Cal coverage to CHIP-eligible children at lower FMAP. c Would depend on the amount of FFY 2016-17 CHIP funds the state carries over into FFY 2017-18. budgeting CHIP funding d Includes a small portion of special funds from the Perinatal Insurance Fund. is reasonable given the CHIP = Children’s Health Insurance Program; FFY = federal fiscal year; FMAP = federal medical assistance percentage; and ACA = Patient Protection and Affordable Care Act. uncertainty. Across the PROPOSED ABOLITION AND TRANSFER OF MRMIF Background condition. Given the ACA’s prohibition on preexisting condition exclusions, MRMIP enrollees Major Risk Medical Insurance Program can now obtain coverage through, for example, (MRMIP). MRMIP provides health insurance the state’s Health Benefit Exchange—Covered coverage to individuals who, prior to the ACA, California. As a result, MRMIP enrollment has could not obtain coverage or were charged steadily declined from 6,570 enrollees in 2013 to unaffordable premiums in the individual health 1,332 enrollees in 2016. MRMIP enrollees, however, insurance market because of their preexisting may choose not to enroll in other coverage because, conditions. MRMIP was originally conceived as for example, they are ineligible based on their a state high-risk pool. The ACA prohibits health immigration status. (Undocumented individuals insurers from imposing preexisting condition are eligible for coverage through MRMIP, but are exclusions, including denying coverage, charging not eligible for premium subsidies and cost-sharing more for coverage, and limiting or refusing to cover reductions through Covered California.) benefits associated with an individual’s preexisting 20 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET MRMIF. Administered by DHCS, MRMIF other purposes, is the significant reduction in pays for any MRMIP costs in excess of what MRMIP enrollees since the ACA’s implementation MRMIP enrollees pay in the form of premiums, (the prohibition on denying coverage due to deductibles, and copayments. The state spent preexisting conditions) and the need for additional roughly $10 million from MRMIF in 2016-17. The funding in the state’s Medi-Cal program. remaining MRMIF balance is estimated to be Budget Proposes Using Fund Balance and $69 million in 2016-17, most of which comes from Ongoing Revenue for Medi-Cal. Once the Health ongoing revenue transferred to MRMIF from the Care Services Plans and Penalties Fund covers all Managed Care Administrative Fines and Penalties MRMIP expenses, the Governor’s budget proposes Fund. This fund, administered by the Department to use the fund’s remaining balance in 2017-18 and of Managed Health Care, is used to deposit any ongoing revenues thereafter to cover overall various administrative penalties and fines for the Medi-Cal expenses. The administration’s rationale licensing and regulation of health care service for this proposal is that a substantial portion of plans. The first $1 million deposited into this fund MRMIF monies are idle and by using them to fund is transferred to the Office of Statewide Health Medi-Cal, the monies would be used in a manner Planning and Development for one of its loan consistent with MRMIF’s purpose of providing repayment programs. The remaining fund amount health care coverage. is transferred to MRMIF. In 2016-17, an estimated LAO Assessment. We find the Governor’s $3.4 million in revenue will be transferred from budget proposal to be reasonable, particularly the Managed Care Administrative Fines and given the high remaining MRMIF balance that Penalties Fund to MRMIF. Administrative fines is likely to go substantially unused for many and penalties vary substantially from year to year: years and the ability to tap ongoing revenues in 2015-16, $8.5 million was transferred to MRMIF. deposited into MRMIF to be used instead to address pressing budgetary funding requirements. Budget Proposal We acknowledge, however, that there remains Budget Proposes Eliminating MRMIF, substantial federal uncertainty about the future of Transferring Fund Balance and Ongoing the ACA and, consequently, whether there could Revenue to New Health Care Services Plans and be an ongoing need for a state high-risk pool like Penalties Fund. The Governor’s budget proposes MRMIP. For example, some ACA replacement to abolish MRMIF and transfer its fund balance proposals currently being considered by Congress and any ongoing revenue from the Managed Care include what would be a reinvigorated role for state Administrative Fines and Penalties Fund into a high-risk pools, perhaps with a federal funding newly created Health Care Services Plans and contribution. Should these proposals come to Penalties Fund, also administered by DHCS. The fruition, the Legislature would want to reevaluate administration’s rationale for abolishing MRMIF, the role and financing of MRMIP. and transferring its monies to another fund for www.lao.ca.gov Legislative Analyst’s Office 21 2017-18 BUDGET 22 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET www.lao.ca.gov Legislative Analyst’s Office 23 2017-18 BUDGET LAO Publications This report was prepared by Brian Metzker and Ben Johnson, 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. 24 Legislative Analyst’s Office www.lao.ca.gov