By Katie Heidorn, Garrett Hall, and Marissa Kraynak
On May 14, 2020, Governor Newsom released his May Revision, a drastically reduced budget proposal due to the COVID-19 pandemic of $203 billion ($133.9 billion General Fund), down from a January proposal of $222.2 billion ($153 billion General Fund). The budget reductions are the result of a projected $54 billion deficit, as estimated in the Department of Finance’s (DOF) recently released Fiscal Update. The Legislative Analyst’s Office (LAO) also predicted a budget shortfall of $18 billion to $31 billion in their Fiscal Outlook, released May 8, 2020. Prior to the May Revision’s release, ITUP published a Five Topics to Watch Blog, highlighting topics to watch in the May Revision. This blog outlines how those topics fared in the new budget proposal and key items of the Health and Human Services section of the Governor’s May Revision. Additionally, at the end of this blog, we have listed some key government budget resources where you can find quick links to both summary level and detailed information on the state budget.
Legislative Budget Hearings and a Balanced Budget: Over the coming weeks, the Legislature will hold hearings on the budget and advocacy and interest groups will lobby both the Legislature and the Administration to ensure decisionmakers hear their perspectives. The Legislature and the Governor will then negotiate to produce a final budget. The Legislature is required to produce a “balanced budget” and send it to the Governor by Monday, June 15, 2020. Due to the requirement that a bill be in print for at least 72 hours prior to legislative action, watch for the budget bill to be in print by Friday, June 12, so that it can be sent to the Governor on June 15. The Governor then has 15 days to sign it so that it will be law by Wednesday, July 1, 2020, the start of the new fiscal year.
“Budget Bill Junior”/Budget Updates Later in the Year: Much of the difficulty in predicting the state’s budget deficit centers on the delay in tax payments for 2019 from April 15, 2020, to July 15, 2020. Once the Franchise Tax Board has received all 2019 tax payments and tallied them, there will be more information on the actual budget deficit. Additionally, this summer there may be more information on additional federal stimulus monies flowing to states, as the Governor discussed during his May Revision press conference. In late July/August, watch for new projections from DOF and the LAO based on this new information. Any changes to the budget would be made in a “Budget Bill Junior”. During the last recession, addressing the budget deficit was a multi-year process.
Topics to Watch and Their Status in the May Revision:
1. General Fund Cut/Solutions Proposals and Other Budget-Savings Mechanisms
Budget Savings Mechanisms: The May Revision proposes many budget cuts/solutions and notes that the recovery effort will require a multi-year strategy similar to the one used during the last recession. They include spending down the $16 billion in the Budget Stabilization Account and Safety Net Reserve; withdrawing billions of dollars in programs that were proposed in the January 10 version of the budget; making cuts to many programs, including in education, health, and human services areas; and, accepting federal stimulus monies. For more details, please see the Introduction section of the May Revision Summary document.
Health and Human Services Cuts: The May Revision would allow many of the cuts to health and human services programs to be reversed through what are referred to as “trigger restorations”. If Congress adopts and the President signs into law additional federal funding through the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, funding would be “triggered on” for many of the programs proposed to be cut.
2. Medi-Cal Enrollment Caseload Projections and Cost—Impact on Consumers and State Budget
Increased Medi-Cal Enrollment: The Administration expects nearly 2 million additional people to become Medi-Cal members due to the economic downturn.[i] Current Medi-Cal enrollment is approximately 13 million; the Department of Health Care Services (DHCS) expects that number to increase to 14.5 million by July 2020 and proposes to dedicate $2.8 billion General Fund and $7.6 billion Federal Funds to that increase.[ii] This means that nearly 2 million people who were uninsured or lost their insurance and became uninsured will have access to full-scope Medi-Cal benefits, including primary care, specialty care, behavioral health, hospital services, and pharmacy, at very low or no cost to them.
LAO Medi-Cal Spending Caveat: The LAO agrees with the nearly 2 million–member increase estimate; however, they disagree with the categories of people that will enter the Medi-Cal program. They estimate a healthier population—more childless adults, families with children with higher incomes, and fewer seniors and persons with disabilities—than DOF. Thus, they estimate that the increase in Medi-Cal members will cost the state $750 million General Fund less than DOF’s estimate between FY 2019-20 and FY 2020-21.
FMAP Increase of 6.2 percent Provides Additional Federal Funding Relief: The federal Families First Coronavirus Response Act temporarily increases the Federal Medical Assistance Percentage (FMAP) by 6.2 percent. California’s base FMAP rate will increase from 50 percent to 56.2 percent, meaning that California and the federal government will share costs for Medi-Cal with California paying 43.8 percent and the federal government paying 56.2 percent of the cost instead of California paying 50 percent and the federal government paying 50 percent of the cost.[ii] The increased FMAP allows California to save $5.1 billion General Fund through June 30, 2021.[i]
3. Medi-Cal Coverage Programs—May Revision Impacts on Consumers
The May Revision maintains most existing Medi-Cal program eligibilities, including the expansions to children and young adults regardless of immigration status. However, the Governor withdraws several January 10 budget proposals that would have expanded eligibility and services and proposes significant cuts to existing health and human services programs. Many of these program cuts are on the “trigger restoration” list (see summary tables above under Section #1).
- Expansion of Medi-Cal eligibility to seniors aged 65 and over regardless of immigration status: This withdrawal will save $112.7 million ($87 million General Fund) in 2020-21.[i] The Governor’s January budget proposal projected this expansion would have covered 27,000 low-income, undocumented seniors.[iii]
- Aged, Blind, and Disabled Program: The May Revision elects to not implement the 2019 Budget Act extension of full-scope Medi-Cal to individuals in the Aged, Blind, and Disabled program with incomes between 123 percent and 138 percent of the Federal Poverty Level (FPL) or incomes up to $17,609 for an individual.iv This will save $135.5 million ($67.7 million General Fund) in FY 2020-21.[i]
- CalAIM Delay: The California Advancing and Innovating Medi-Cal (CalAIM) initiative, a signature Medi-Cal reform program for the Newsom Administration, is withdrawn, saving $695 million ($347.5 million General Fund) in 2020-21.[i]
- Home Visiting and Black Infant Health (BIH) Program: The May Revision withdraws the budget initiative for this California Department of Public Health (CDPH) program, which works to improve African-American infant and maternal health. There are well-documented maternal mortality racial health disparities and the BIH program reports, “African-American mothers are four times as likely to die from pregnancy-related causes as White mothers.”v This withdrawal saves $4.5 million General Fund ongoing beginning with FY 2020-21.[i]
May Revision Program Elimination or Modification Savings Proposals:
- CBAS and MSSP Programs Elimination: The May Revision proposes to eliminate the Community-Based Adult Services (CBAS) program and Multipurpose Senior Services Program (MSSP) by January 1, 2021, and July 1, 2021, respectively. CBAS is a community-based day health program serving older adults with health conditions who are at risk of needing institutional care. Eliminating CBAS will save $194.4 million ($96.8 million General Fund) in FY 2020-21 and $461.7 million ($230.7 million General Fund) in FY 2021-22.[vi] According to the California Department of Aging, CBAS served 36,031 individuals at 257 centers statewide in FY 2019-20. The MSSP program provides Home and Community-Based Services, including care management at home, using available community resources, and purchasing needed services for Medi-Cal eligible individuals who are over age 65, disabled, and residing in a county with an MSSP site to prevent or delay individuals from moving into a skilled nursing facility.[vi] The elimination of MSSP will save $37.6 million ($22.2 million General Fund) in FY 2020-21. The program serves approximately 11,370 individuals annually across 38 sites statewide.[vi]
- Medi-Cal Optional Benefits Elimination: The May Revision reduces adult dental benefits to their 2014 levels and eliminates optional benefits such as audiology, incontinence creams and washes, speech therapy, optometry, and diabetes prevention program services to save $54.7 million General Fund. These reductions and eliminations are regarded as trigger restorations and the benefits would be restored with additional federal funding.[i]
- Reinstate Medi-Cal Estate Recovery: The May Revision reinstates the estate recovery policy in effect before the 2016 Budget Act, which requires the Medi-Cal program be repaid from the estates of deceased Medi-Cal enrollees. This measure will save $33.8 million ($16.9 million General Fund) beginning in FY 2020-21.[ii]
- CalWORKs Home Visiting Program Reduction: The May Revision reduces funding for this program. It supports positive health development and well-being outcomes for people living in poverty, to yield a savings of $30 million General Fund in FY 2020-21.
- In-Home and Supportive Services (IHSS) Hours Reduction: Effective January 1, 2021, the May Revision includes a seven percent reduction in the number of hours provided to IHSS beneficiaries. In April 2020, IHSS had 625,180 recipients with an average of 109.2 hours per recipient. This measure saves $205 million General Fund in FY 2020-21. These reductions are regarded as trigger restorations and the hours would be restored with additional federal funding.[i]
- Regional Center Rate Cuts: The May Revision assumes $300 million in General Fund savings in FY 2020-21 by adjusting provider rates and expenditure trends. The Administration estimates that 366,353 individuals will receive developmental services in FY 2020-21. These reductions are regarded as trigger restorations and the funding would be restored with additional federal funding.[i]
Additional Consumer Impacts:
- Covered California Subsidies: The May Revision maintains the 2019 Budget Act’s subsidies provided to Covered California enrollees between 200 and 600 percent FPL (incomes up to $75,000 for individuals and $150,000 for a family of four). However, the Administration estimates that the number of people taking advantage of these newly provided state subsidies will be lower than expected, for a projected savings of $164.2 million General Fund in FY 2019-20 and $90.3 million General Fund in FY 2020-21.[i] Covered California reports that, during the COVID-19 special enrollment period (March 20 – May 16, 2020), 123,819 individuals enrolled in Covered California. Of those enrolled, 85.1 percent, or 105,350 enrollees, received some form of state and federal subsidies.
- Project Roomkey and Housing People Experiencing Homelessness: The May Revision proposes to use $750 million in federal funds to purchase hotels and motels through Project Roomkey. This project, announced by Governor Newsom on April 3, 2020, to protect homeless individuals from COVID-19, has already allocated $150 million to secure hotel and motel rooms. By mid-May, the project had secured over 15,000 hotel and motel rooms, with more than 7,200 occupied, and dispersed 1,305 trailers to local governments.[vii]
- EITC Tax Credit: The May Revision maintains the Earned Income Tax Credit’s (EITC) extended level of credit included in the 2019 Budget Act, which offered tax credits to one million additional households. This includes $1,000 for every eligible family that also has at least one child under age six.[viii]
4. Safety Net Hospital, Clinic, and Provider Impacts
The May Revision proposals impact the health care safety net system and providers. Several of these reductions and eliminations would be reserved with additional federal allocations. Highlights include:
- Proposition 56 Supplemental Provider Payments—Fund Redirection: Shifts $1.2 billion in tobacco tax revenue to general Medi-Cal growth and away from targeted physician, dental, and family health services, developmental screenings, non-emergency medical transportation, value-based payments, and physician and dentist education loan repayments.[i] Proposition 56 will continue to support some increased payments to providers for home health, pediatric day health, and pediatric subacute services, trauma screenings, HIV/AIDS waiver supplemental payments, and already committed loan repayments. In the first year of the Proposition 56-supported education loan repayment program, 240 physicians and 38 dentists received education debt repayment, which resulted in an average of 63% increase in Medi-Cal caseloads for awarded providers.
- Managed Care Capitated Rate Reductions: Proposal to reduce capitation rates from July 1, 2019, to December 31, 2020, for a savings of $586 million ($182 million General Fund).[i]
- Federally Qualified Health Centers (FQHC) Payment Adjustments: Special carve-out eliminations, totaling $100 million ($50 million General Fund) in savings.[i]
- 340B Clinic Supplemental Payments: The May Revision withdraws the January budget proposal to address the loss of 340B Program savings for non-hospital 340B clinics resulting from the transition of Medi-Cal pharmacy services to fee-for-service. This saves $52.5 million ($26.3 million General Fund) in FY 2020-21 and $105 million ($52.5 million General Fund) in 2022 and ongoing.[i]
- Martin Luther King Jr. Hospital: Eliminates a supplemental payment to this hospital, saving $65.4 million ($17.2 million General Fund ).[ii]
- Song-Brown Health Care Workforce Program: General Fund support, saving $33.3 million in FY 2020-21.[ix]
- Office of Health Care Affordability Deferred: The May Revision defers the January budget proposal to establish an Office of Health Care Affordability with the goal of increasing health care cost and quality transparency and health care affordability for private insurance consumers.[i].
- MCO Tax: The state’s Managed Care Organization Tax was approved in April 2020, yielding a General Fund savings of $1.7 billion in FY 2020-21. The tax remains in effect from January 2020 – December 2022.[i]
5. Projected COVID-19 Costs Covered by Medi-Cal for the Uninsured and Underinsured
Prior to the May Revision, the state allocated $2.2 billion in their response to COVID-19. The breakdown of these allocations can be seen here. Additionally, DHCS requested federal approval for COVID-19–specific Medi-Cal program modifications through Sections 1135 and 1115 waivers and State Plan Amendments; several are listed below. If approved, these modifications would result in $386.7 million ($118.4 million General Fund) costs in 2019-20 and $284.5 million ($99.1 million General Fund) costs in 2020-21. A complete list can be found on Pages 6 and 7 of the DHCS May Revisions Highlights.
- Uninsured Coverage Expansion: Provide coverage for diagnostic testing, treatment, and other COVID-19 related services to people who are uninsured, at no cost to them. These services are reimbursed at 100 percent federal funding.
- Hospital Presumptive Eligibility (HPE) Expansion: Expansion of HPE to include the aged(65 years of age and older), blind, and disabled population, including PE coverage for two periods within a 12-month timeframe.
- Institutions for Mental Diseases (IMD) Bed Capacity and Ancillary Services: Expenditure coverage for seniors (ages 65 years old and over) who are patients in IMDs during the COVID-19 pandemic. State and federal IMD bed limitations are waived due to the COVID-19 emergency.
Key Government Resources
Below, we’ve provided key places to find both summary level and detailed information on the state budget, as well as links to budget bill language (BBL), trailer bill language (TBL), and budget change proposals (BCPs).
A. Governor’s Budget/Department of Finance (DOF): This is the official page for the Governor’s Budget, includes both detailed fiscal information (“budget detail”) and summary level information (also know as “summary” or “A Pages”), and is updated at the January Budget Release, May Revision, and upon signature of the Final Budget Act; you can also find past budgets here.
B.Administration/DOF Health and Human Services May Revision Summary: This is the summary for the Health and Human Services programs in the budget. Note: there is much more detail in individual departments’ budgets than is summarized here, so if you are interested in a particular department, check their webpages for additional information. There are summary charts for the entire budget, as well as some topic-specific summary chapters, such as Homelessness and Local Government and Encouraging Recovery, that may be tangentially related to Health and Human Services.
C. Department-Specific Highlights: Some departments release a “highlights” document that delves further into their department-specific budget proposals and changes. If you need more than a summary, these are good “mid-range” documents to review.
a. Department of Health Care Services (DHCS) Budget Highlights
b. California Department of Social Services (CDSS) Local Assistance Summary Highlights
c. California Department of Aging Budget Summary
d. California Department of Public Health (CDPH) Budget Highlights
A. Legislative Analyst’s Office (LAO) May Revision Summary
B. LAO’s Health and Human Services May Revision Summaries
E. Proposed Budget Bill Language (BBL):
ITUP will provide another update once the Budget Act is signed in the coming weeks.
ii Department of Health Care Services, 2020-21 May Revision Highlights, May 14, 2020.
iii Insure the Uninsured Project, ITUP Overview of the Governor’s Proposed 2020-21 Budget, January 18, 2020.
iv Covered California, Program Eligibility by Federal Poverty Level for 2020, March 2020.
v California Department of Public Health, Black Infant Health, Program Profile, April 1, 2020.
vi California Department of Aging, Summary of Adjustments, May Revision– 2020-21, May 22, 2020.
vii Department of Finance, May Revision, Homelessness and Local Government, May 14, 2020.
viii Department of Finance, May Revision, Encouraging Recovery, May 14, 2020.
ix Legislative Analyst’s Office, Overview of Major Health Proposals in 2020-21 May Revision, May 19, 2020.