The dirty details on the budget…

HEALTH ACCESS UPDATE
Thursday, January 10, 2008

GOVERNOR ANNOUNCES BUDGET CUTS; HEALTH CUTS WOULD IMPACT MILLIONS
* $14.5 billion deficit surfaces 10% reductions across state programs and departments
* Governor revisits health budget cuts previously rejected as too severe
* Cuts include major provider rate cuts; benefit cuts, including dental; QSRs
* Health reform proceeds, offers argument against cuts, for revenues

New on the Health Access Weblog: More on the budget, SF court case; Status of AB x1 1; etc.

Gov. Arnold Schwarzenegger returned to his pre-post-partisan days Thursday, unveiling an austere 2008-09 budget that attempts to address a $14.5 billion deficit, and calling a fiscal emergency.

THE BUDGET IN BROAD STROKES

Next year’s $141 billion budget would close parks, cut education funding, and cancel advance payments of budget borrowing from previous years. The budget reduces most state departments and programs by 10 percent, across-the-board.

“Now, some might say that it sounds easy to just cut across the board by 10%, but let me tell you… I can see every single person hurt by those cuts, and I understand how difficult they will be for many, many people,’’ Schwarzenegger said.

Nevertheless, Schwarzenegger revisited familiar fiscal territory, proposing cuts that both he and former Gov. Gray Davis had proposed, but were rejected by lawmakers as too extreme. In addition, Schwarzenegger re-proposed a so-called budget “reform,” which had twice failed in previous years: automatic, across-the-board cuts to programs when spending grows ahead of revenues.

Democratic legislative leaders immediately disavowed the budget. “The budget proposed today is what a cuts-only budget looks like and the proponents of a cuts-only approach need to own it,” Speaker Núñez said. “This budget isn’t going for an up or down vote today. Clearly if passed as written, it would cause a lot of permanent harm.”

THE MOST PROMINENT HEALTH CUTS

The health cuts themselves would reduce access to care, cut covered benefits, and raise costs for millions of low-income California children, parents, seniors and people with disabilities. These are cuts that have been considered before, that previous Legislatures have rejected as too extreme. For a look at Health Access’ budget cuts scorecard from the previous budget crisis, click here.

Three areas of reductions with the biggest dollar value are provider rate cuts, cuts to benefits, and quarterly status reports that would serve to discourage access to care. Other cuts include increased costs and reduced benefits in Medi-Ca, Healthy Families, and other programs. The impacts include:

* PROVIDER RATE CUTS ($720.9 million): Cuts to provider rates will significantly reduce access to doctors, hospitals, and specialists for the over six million Californians with Medi-Cal coverage, and many others. California already has among the worst reimbursement rates in the nation, and over half of the state’s doctors don’t take Medi-Cal.

* BENEFIT CUTS, INCLUDING ADULT DENTAL ($133.9 million): The millions with Medi-Cal coverage will also lose several health benefits. Three million low-income parents, seniors, and people with disabilities will lose dental coverage under this proposal.

* MORE PAPERWORK LEADING TO LOWER ENROLLMENT ($92.2 million): While the proposal does not seek to directly cut eligibility to public programs, it imposes paperwork burdens–so-called “quarterly status reports” (QSRs) on low-income families with the purpose of having over one hundred thousand Californians fall off coverage.

IMPLICATIONS FOR HEALTH REFORM

Gov. Schwarzenegger maintained that his goal of reforming the state’s health care system was not contrary or inconsistent with the severe cuts proposed to programs that would be expanded in health reform.

During his State of the State, the Governor conjured up President Franklin Delano Roosevelt, who presided over the Depression era, “he did not just wait and hope for something to happen. He was acting; he was making a move. He started building bridges…highways…buildings and all this. All the things we stil enjoy today. He did not say, ‘Because this is a temporary problem, people should suffer permanently because of it. No. He wanted to do things, and that’s what we have to do.’’

ABx1 1 (Nunez) and its accompanying ballot measure could address and provide a needed infusion of cash — nearly $15 billion — to provide health coverage. The arguments made for health reform in the past year can be used to argue against cuts like the ones Schwarzenegger proposed Thursday.

Medi-Cal provider fees: The proposed budget seeks to cut provider fees by 10%, even though the Governor has made clear that doctors and hospitals in California that care for the neediest patients are paid some of the lowest rates in the nation, which creates access issues for those on Medi-Cal, and a “hidden tax” on the rest of us. Health reform would raise rates as much as 20% in some cases and not cost the state additional general fund money. The money would come from a 4% hospital fee increase that the state’s California Hospital Association has approved. (It is worth noting that nursing homes did not suffer a proposed rate reduction because their rates are largely self-funded, having imposed a 6% fee on themselves in 2004.)

Federal matching funds: The proposed budget would cut Medi-Cal by $1.1 million, which means that California would lose another $1.1 million in federal Medicaid matching funds. The Governor has argued that our lack of investment in health care has meant that we have left billions of dollars of federal matching funds on the table in Washington, DC. Health reform would enable the state to pull down additional federal matching dollars because the state would be paying more into Medi-Cal (drawing down a dollar for dollar match) and Healthy Families (which draws down $2 for every $1 state dollar spent).

Reductions in uncompensated care costs: The proposed budget would decrease Medi-Cal caseload through the imposing of the quarterly status reports, and leave more people uninsured, and increase the “hidden tax” for the rest of us. The Governor has argued that expanding coverage to 95% of Californians under health reform – either through work or public programs – will mean more patients would be able to pay, or have a source pay, for their care. This reduces the losses for hospitals and providers, and puts them less at risk of closure.

HEALTH BUDGET CUTS: THE NITTY GRITTY

Following is a rundown of major health programs in California and the cuts sustained.

MEDI-CAL, which serves the state’s poorest Californians – most with incomes up to $17,170 for a family of three, will suffer a $1.1 billion blow, which would reduce their benefits and make it harder for them to access care.
2007-08: $37 billion ($14.1 billion general fund),
2008-09: $36 billion ($13.6 billion general fund)

PROVIDER RATE CUTS ($720.9 million) – the reductions will be divided as follows.
Ø -$602.4 million: Doctors, hospitals, managed care plans, other providers
Ø -$56.8 million: Rates to long-term Care facilities
Ø -$30 million: Non-contract hospitals
Ø -$34.4 million: Funding reductions to public hospitals
Ø Noted: Nursing home provider rates were not reduced because of a 6% nursing home fee increase imposed in 2004.

BENEFITS CUTS ($133.9 million): Proposal would reduce benefits that the federal government considers “optional.”
Ø -$115 million: Adult dental benefits
Ø -$19 million: Chiropractic care, incontinence creams and washes, acupuncture, audiology, optometry, opticians and optical labs, podiatry, speech therapy and psychology.

BUREAUCRATIC BARRIERS THAT REDUCE ENROLLMENT ($92.2 million): Requires Medi-Cal recipients to file paperwork every three months to determine eligibility for the program. The Governor’s office expects this alone would result in a decreased enrollment of 73,900 children and adults falling off of Medi-Cal. Currently, children who qualify are insured for an entire year. Parents need to file semi-annually.

OTHER CUTS ($157 million)
Ø -$24 million: Reduction in pay to hospitals which incur uncompensated care costs. These hospitals care for high numbers of uninsured patients and Medi-Cal recipients.
Ø -$50.1 million: Medicare Part B premiums for elderly who do not qualify for Medi-Cal share of cost.
Ø -$83.1 million: County, administrative and other reductions.

HEALTHY FAMILIES, which provides coverage to low- to middle-income children on a sliding scale for families up to 250% of poverty ($51,625 for a family of three) will also endure changes. Families who are enrolled will have to pay higher premiums and co-pays, which will vary by income.
2007-08: $1.1 billion ($393.6 million general fund), 888,450 enrollees
2008-09: $1.1 billion ($387.8 million general fund), 954,252 enrollees

Ø -$6.3 million: Limiting dental benefits to $1,000 annually
Ø -$3.4 million: Increasing co-pays for non-preventative services from $5 per visit to $7.5- per visit for families with incomes higher than 150% of poverty ($25,758 for a family of three)
Ø -$11.1 million: Increasing premiums for families with incomes higher than 150% of poverty. Premiums would range from $9 to $19 per child. One family would pay no more than $57/month in premiums.
Ø -$22.4 million: A 5% reduction in payments to health plans that participate in Healthy Families

MRMIP, (Managed Risk Medical Insurance Program), provides health coverage for high-risk, medically uninsurable individuals who are denied health care in the private, individual market. The program currently has 339 Californians on a waiting list to obtain coverage and more than 8,000 enrollees, according to the director Lesley Cummings on Thursday.
2007-08: $40 million
2008-09: $36 million

To view the governor’s budget, visit www.ebudget.ca.gov.

WHAT’S NEXT

The Legislative Analysts Office will pore over each line of the budget and release a thorough analysis to lawmakers in mid-February. Soon after, Legislative budget subcommittees will begin vetting each section of the budget and eventually the Legislature will produce a counterproposal to the governor’s budget. Schwarzenegger, in the meantime, will revise his budget in May, using the latest revenue and spending numbers available.

In the interim, ABx1 1 (Nunez) is scheduled to be heard in the Senate Health Committee on January 16.

For more information, contact the author of this report, Hanh Kim Quach, at hquach@health-access.org.

For more information about the Year of Health Reform, visit http://www.health-access.org/advocating/2007_healthdebate.html.

Health Access California promotes quality, affordable health care for all Californians.

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