Health Care Cuts Deeper Than They Appear in California

Health advocates understand cuts to health programs in California often result in larger losses to the state than the cuts themselves, but how clear is that to the average Californian?

Some of the recent budget cuts — including funding blows to Medi-Cal, the state’s Medicaid program, and Healthy Families, California’s Children’s Health Insurance Program — actually result in significantly larger losses because matching federal funds are also reduced. Sometimes, the federal losses can be larger than the initial cutback.

For instance, the state’s $178 million funding cut to Healthy Families could result in the state losing an additional $372 million, bringing the total Healthy Families reduction to about $550 million. The federal government pays about $2 for each dollar the state contributes to Healthy Families.

“I don’t think this is common knowledge,” Micah Weinberg, health policy specialist with the New America Foundation, said, adding, “When people are evaluating whether they’re happy with [Gov. Arnold] Schwarzenegger (R) and the Legislature, they say, ‘Oh well, cuts have to be made somewhere.’ But I don’t think they actually understand how cuts to some programs — especially health programs — go a lot deeper than they appear,” Weinberg said.

In the latest budget, California’s Health and Human Services funding was cut by almost $4 billion, all told. If losses in federal matching funds are considered, the overall financial impact could be twice that, according to some estimates.

Some Cuts May Face Legal Challenge

Portions of health program cuts —- the last-minute, line-item cuts the governor made to the budget before signing it last week — likely will face legal challenges and might be reversed in the courts.

According to a four-page opinion from the Legislature’s legal counsel, Schwarzenegger exceeded his authority when he used line-item vetoes to cut funding from state health care services and other programs. Above and beyond the cuts approved by the Legislature, the governor’s blue-pencil cuts eliminated $489 million in funding for state programs, including more than $150 million for health care programs.

Health advocates predict the governor’s cuts will be challenged in court, and Democratic leaders said they would try to reinstate those funds when the Legislature goes back to work in September.

“Health programs may see some relief there, but not much,” Weinberg said. “When you’re talking about the immediate budget year, it’s tough to figure the exact amounts of reductions because we don’t know whether all those cuts will be determined to be legal. But even without the last-minute cuts by Schwarzenegger, health care took a big hit this year — bigger than I think most people realize.”

Efforts To Reduce Federal Losses

State officials, who admit that losing federal money is not necessarily in the best interest of California, are trying to soften the blow in two areas, according to H.D. Palmer, deputy director of external affairs for the California Department of Finance.

“There very likely will be some situations in which we do not draw down some federal dollars because of the budget decisions, but, in order to close what is a combined budget gap of more than $60 billion in less than six months, we had to confront the most severe issues, including health care programs,” Palmer said.

“That said,” Palmer continued, “we are working to lessen the possibility of losing federal funds on two fronts, and we hope to make progress on both of them.”

Palmer said Schwarzenegger and California Secretary of Health Kim Belshé met with HHS Secretary Kathleen Sebelius in an effort to increase the amount of Medicaid money flowing into California. Despite Medi-Cal cutbacks by the state, he said state officials hope to negotiate good deals for California.

“We’re confident changes in programs, waivers and other flexibilities will result in roughly a billion dollars in general fund savings,” Palmer said, adding, “We may be able to draw down additional federal funds.”

“And on the other front — with the Healthy Families situation — we’re working to see if there are other places to get money to help make up some of the difference,” Palmer said.

The Managed Risk Medical Insurance Board, the state agency that oversees the Healthy Families program, met last week to discuss possible ways to deal with budget cuts.

Palmer said the Schwarzenegger administration would support moving money from one state program to another to help fill the gap.

First 5 California, which came up with $16.7 million for Healthy Families late last year to prevent 65,000 of the state’s youngest children from being shifted to a waiting list, has pledged to provide financial support again. A dollar amount has yet to be announced, and First 5 funding would only be used for children ages five and younger.

Some health advocates also hope charitable organizations in California join state agencies like First 5 to help Healthy Families fill the budget gap.

“No one knows yet to what extent organizations like that can serve to mitigate losses, but we are pursuing those types of things,” Palmer said.

‘Budget Syndrome’

In a video produced by NAF and posted on YouTube, Weinberg refers to a condition he calls “Budget Syndrome — or B.S.” as a key factor in the state’s decisions to cut health care funding.

Weinberg maintains that California’s leaders are working at a disadvantage because California’s system of governance is broken. The governor, legislators and state officials are forced to deal with a hodgepodge of special interest legislation through ballot initiatives overseen by a Legislature hamstrung with an outdated requirement for a two-thirds majority to pass bills dealing with money.

Some health advocates say health programs in California would be better served with dedicated funding sources, similar to the education funding mandate included in 1998’s Proposition 98.

Weinberg disagrees.

“I totally understand the motivation of people who want to set aside funding for health programs,” Weinberg said, adding, “I share their frustration related to cuts being made, but in the bigger picture, eliminating flexibility for our government is not going to be the solution for our problems.”

Weinberg said California’s government — like the health care system — needs fundamental reform.

“Some of what we’re dealing with in this year’s budget is a result of economic forces far beyond the realm of California,” Weinberg said. He added, “But a big part of the problem is that our system isn’t working and it isn’t set up to work. Until we fix the system, we’re going to continue to have the same problems.”

Related Topics

Health Care Costs Insight Medi-Cal