The Reckoning

June 13, 2013

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I have been haunted for the last decades by David Halberstam’s book, “The Reckoning” which details the decline and fall of the Big Three Detroit automakers who forgot the basics of design, engineering, and quality while focusing obsessively on “finance”. As a result Japanese automakers flourished while “made in Detroit” declined as a mark of excellence in manufacturing.

The Great Recession of 2007-9 was a further wake-up call of the peril associated with allowing unregulated “finance” to dominate and ultimately wreck the nation’s economy while ignoring the need for a strong, competitive and productive manufacturing sector. As we implement the Affordable Care Act (ACA), we ought to keep in mind Mr. Halberstam’s lessons as they apply to the US health care system.

Our current system is over-priced, inefficient, and fails the test of quality and outcomes as compared to our peers in other countries. We are paying too much and not getting good value; this critique applies to both plans and providers. We focus too much on finance (the health plans) and too little on the product (good and efficient health outcomes).

The ACA gives us the opportunity to design a system that is more cost conscious with better quality and improved outcomes. It leaves to each state the political will, the opportunity, and affords the financial means to make that happen. For example, the ACA makes payment reforms in Medicare, but it leaves to states whether to make payment and delivery system reforms in Medi-Cal and to employers whether to make payment reforms in employment based insurance. As another example, each state now decides whether to expand their Medicaid programs and how much to pay their provider networks.

These choices are now in the hands of the state legislature and California’s Governor, of the state’s employers, providers and health plans, and there are many moving and indecipherable parts. We would urge Medicaid expansion, transparency of pricing and quality, strong incentives for lower costs and better outcomes, and improved design of fully integrated systems such that patients and providers can easily understand and navigate them.  Most importantly we urge wholesale simplification of public and private health programs that are incomprehensible to the average consumer.

The following are a list of some of the most crucial opportunities facing state and local policy makers as they implement the ACA for state and county health programs.


  • Improving county public health and prevention[i]
  • Improving and upgrading and integrating county primary care[ii]
  • Right sizing county hospitals[iii]
  • Redesigning county health for the remaining uninsured[iv]
  • Integrating and upgrading behavioral health with physical health[v]
  • Coordinating and competing with the private sector[vi]
  • Upgrading eligibility and enrollment systems[vii]
  • Adopting electronic health records[viii] and
  • Shifting decision-making towards local managed care plans[ix].


  • Medi-Cal expansion[x]
  • Medi-Cal primary care rate increase and patient centered medical homes[xi]
  • Medi-Cal outreach and enrollment assistance[xii]
  • Medi-Cal simplification[xiii]
    • Asset tests elimination[xiv]
    • Income disregard consolidation[xv]
    • AID code consolidation and elimination[xvi]
    • Coordinating coverage for children and their parents[xvii]
    • Simplification of eligibility process[xviii]
      • Applications[xix]
      • Redeterminations[xx]
      • Verifications[xxi]
      • Notices and hearings[xxii]
      • Coordinating with the Exchange[xxiii] and
      • Redesigning and downsizing duplicative and overlapping programs.[xxiv]

At the end of the day, what should the programs look like? In our view, full scope Medi-Cal should be for US citizens and all legal permanent residents with incomes below 133/138% of FPL, while Covered California should be for all those above 133% of FPL. Local Medi-Cal managed care plans should be able to participate in the Exchange as “narrow” Bridge Plans so that all family members are in the same plan. Carved out services should be carved in so that behavioral health is fully integrated and in parity with physical health. Plans should contract with ACO’s (behavioral and/or physical health) to improve care and outcomes for their most medically fragile subscribers. The remaining uninsured should be the responsibility of local safety nets, and safety net funds should be consolidated and equalized among the counties based on their share of the remaining uninsured. The funds and the delivery system for the remaining uninsured should be administered by a well-integrated local Medi-Cal managed care plan for the remaining uninsured. Prevention and public health should be a joint and coordinated responsibility of counties, the state and all managed care plans.

Prepared by: Lucien Wulsin, ITUP

Dated: 6/12/13


[i] The ACA is built on prevention and public health, and county public health departments are the logical leaders to build a “Healthy California”. Their funds will be slightly augmented to the extent they can bill effectively for the services they provide; however they are heavily although financed by realignment, which is in some peril. Public health has been much diminished through years of lean budgets and needs to redesign its efforts in light of the ACA. It needs to partner with plans, employers and other non-traditional partners that share their responsibility to improve the health and wellness of the community.

[ii] Provider counties and hybrid counties operate their own clinics; some are high priced and poorly perceived in their communities while others are efficient and well-regarded. Clinics will be in high demand under the ACA and ½ to 4/5th of their uninsured patients will be compensated as enrollment in Medi-Cal in particular increases. The Medi-Cal expansion is particularly important for these clinics as most of their uninsured patients are very low income. Realignment is important for care to their remaining numbers of uninsured. The §1115 waiver’s federal DSRIP funding has been of signal importance in preparing clinics for reform and the federal LIHP funds have played a vital role in paying for clinics’ uninsured patients. Not all are well-prepared, and some are poorly prepared to participate in managed care or to compete with the private and non-profit sectors.

[iii] Under the ACA, the emphasis changes from emergency and trauma care, where county health is very strong, to primary care and prevention. While many of hospitals’ uninsured will be covered, their DSH funds will be cut in half beginning in 2017, and their realignment funding is imperiled as well. Counties will need to assess whether they may be over-invested in expensive hospital based services for the future needs of their communities. In the past, county health officials have identified the interwoven incentives of county hospital financing as creating a major financial barrier to the right-sizing that the ACA will encourage, California’s next §1115 waiver needs to address and remove this obstacle.

[iv] County indigent health will experience reduced demand for services; it is as yet unclear how large the reductions will be and when they will occur. At a minimum, all LIHP (Low Income Health Program) eligibles will enroll in Medi-Cal managed care or Covered California beginning in January 2014. The reductions in demand will be quite different in payor vs. provider counties due to the differences in defining individuals eligible for the program.

Realignment funds going into indigent health will be reduced at the state or local level or both. In provider counties, the redesigned program should look like the managed care systems for the Medi-Cal managed care system rather than the episodic, emergency room based systems that long dominated county health. This is a profound shift that has already been underway in these counties for 2-5 years. In payor counties, the remaining uninsured cared for in the county system are likely to become quite small over time, and funding will certainly be reduced and reallocated at the state and local levels. Counties or the state may want to contract directly with integrated local non-profit safety nets for their care or set up a safety net care pool like SB 12 (Maddy) and EAPC administered by a local health plan to compensate local providers. Realignment funds were inequitably distributed from the start and have become ever more so over time, the state may wish to distribute future funds based on the apples to apples, directly comparable, actual experiences of the counties in caring for the residually uninsured.

[v] There are three separate local silos, physical health, mental health and substance abuse, set up to care for an individual Californian. The ACA requires coverage of behavioral health services and requires parity; this will require counties (or the state) to invest in upgrading these services. Funds for upgrading these services for new eligibles are available at 100% federal match through the ACA. However upgrading behavioral health for existing eligibles requires a 50/50 match, and under California law this would come from the counties, which are not particularly well-funded to expand their care. In addition the savings from upgrading behavioral health will inure to the Medi-Cal managed care plans, not to the county behavioral health programs.

The carved out County Mental health and Drug Medi-Cal programs will need to be integrated with physical health. Some counties are already testing how this is done with impressive results. Ultimately, behavioral health should be covered by Medi-Cal managed care plans that would in turn sub-contract for specialty behavioral health services through the local mental health plans; the resulting savings would be shared and permit further improvements in coverage. This would align financial incentives and delivery systems and deliver better and more affordable care to some of the most costly patient populations.

[vi] The safety nets comprise both public and private sector providers that compete for the same resources and patients, but need to collaborate and cooperate in delivering care to their patients. In several counties following the Alameda model, that collaboration is very successful. While in others, such as the Inland Empire counties, there is much collaboration that is yet to be achieved. Counties are concerned about losing their existing patients to the private sector; some community clinics share the fears that private physicians will be a more appealing site of care for their patient populations.

Moving county indigent patients from “county only” systems into Medi-Cal managed care will require better collaboration among the safety net providers and investment in stronger, more effective IPAs that will serve both community clinics and county facilities.  The LIHP and DSRIP programs jump-started these efforts. While LIHP will morph into Medi-Cal managed care for the newly insured, these models should serve to care for the remaining uninsured. DSRIP was intended to improve the quality of care in public facilities and ends in 2015. Any new waiver should focus on the challenges of care integration and improved coordination among the full range of safety net providers.

Over the long term, we suggest that the local safety net become a fully integrated health plan, along the lines of the Kaiser model, that can compete in the Medi-Cal, Exchange and Medicare markets.

[vii] Many counties operate separate eligibility systems for their county indigent and Medi-Cal eligibles. In some counties, there is broad and effective use of technology, in others not. In some counties, there is heavy use of “paper chase” eligibility verifications while in others self-declarations are accepted. In some counties, the sites to apply and appointments to apply are quite limited; whereas in others multiple sites are permitted and quick turn-arounds of eligibility and renewals are the norm. The ACA envisions and requires a system of multiple sites, electronic verifications and fast responses that will require many counties to upgrade their eligibility, enrollment systems; there will be a switch from the hands-on personnel intensive systems to a high tech system that will require significant adjustments from low income consumers and from the county social services offices and their employees. LIHP has been a partial bridge to the new system, but in many counties a significant investment in technology and an upgraded workforce and workflow are required. Federal funds with favorable matching ratios are available to finance these upgrades. Union contracts may have outdated limits on caseload and application processing that will need to be revised.

[viii] Provider counties have federal funds available to establish electronic health records. Some have proceeded rapidly while others are years away from implementation. Some have connected with community clinics while others cannot yet connect among their own sites. There is much work to be done before the HIT system becomes interoperable among the safety net providers and plans.

[ix] The biggest shift is that payment for care for most of the uninsured will no longer come from the county, but rather from the local managed care plans, and the source of payments will shift from state and county governments to the federal government. This will change governance and decision making quite dramatically. Payor counties’ roles in paying for care to the indigent uninsured will diminish and likely disappear while provider counties will no longer occupy the dual and conflicting roles of payor and provider, but rather shift primarily to the provider role or become fully integrated and competitive Kaiser style HMOs, as discussed above. This may produce salutary but wrenching changes designed to improve the quality and efficiency of local delivery systems.

[x] The state Department of Health Care Services will assume responsibilities for the MIAs, which have been a county responsibility and for the parents with incomes between 100 and 133% of FPL whose catastrophic care was paid for through the medically needy program. The costs of care to the newly insured parents will be a 50% savings to the state and the costs of care to the MIAs will be a 100% savings to the county with savings to the state as well. While this expansion is funded 100% by the federal government; in 2020, the state will need to pay 10% of the costs. The state will also benefit from the 100% federal match for the disabled during their applications for SSI and Medicaid as disabled; this is a 50% savings on the costs of their coverage. When we asked CHIS (, it responded that an estimated million and a half Medi-Cal patients reported incomes in excess of 133% of FPL; some portion of them will shift from Medi-Cal to the Exchange; this will be a 50% savings on the costs of their care. Medi-Cal and AIM coverage for pregnant women with incomes between 133 and 300% of FPL will shift into the Exchange; this will be a 50 to 100% savings on the costs of their care. CCS and AIM coverage for children in families with incomes over 250% of FPL will shift into the Exchange; this will be a 50 to 100% savings on the costs of their care. Family PACT coverage for family planning services for individuals with incomes up to 200% of FPL will shift into the Exchange or the Medi-Cal expansion with 100% FFP; this will be a 100% savings on the state’s costs of their care. Women with breast cancer and men with prostate cancer will shift into the Medicaid expansion and the Exchange; this will be a 100% savings on the state’s costs of their care. Persons with AIDS and HIV in ADAP and individuals with medically uninsurable conditions will shift into the Exchange and Medicaid expansion; this will be a 100% savings on the state’s costs of their care.

[xi] The federal government will pay 100% of the costs of the increasing payment rates for primary care to Medicare levels for two years, with the enhance match ending December 31, 2014. California has not yet implemented this increase, but has indicated a willingness to do so retroactive to January 1, 2013. The cost of extending this increase is about $250 million General Fund. There is also an enhanced 90/10 federal match available for the supplementary services associated with the Patient Centered Medical Home.  These services have been extraordinarily effective in reducing health spending for individuals with chronic illness. The California Endowment has offered to fund the state match to implement this option; the state has not yet decided to accept the offer.

[xii] Covered California has designed and contracted for outreach and enrollment for the new program. The state has yet to design its outreach efforts to explain the Medicaid expansion to low-income individuals, the majority of whom mistakenly believe the Affordable Care Act has been repealed. CAA’s will be compensated $58 per successful applications under Covered California; the California Endowment has offered to pay the General Fund costs of a comparable effort for Medi-Cal – an offer that warrants serious consideration.

[xiii] Medicaid is nearly 50 years old and quite complicated due to its long history as the predominant major federal health program for the uninsured. The ACA would modernize it in many respects: eligibility, enrollment, benefits and payment reforms and pay for nearly all of the new costs. California has not yet decided which roads to take in simplifying the program; however its existing system is needlessly complex and its reimbursement rates are quite low as compared to the private sector. The ACA gives California the opportunity to improve its program with most of the costs of these improvements paid for by the federal government.

[xiv] The ACA eliminates the assets test for families, children and for other individuals, but not the aged and disabled or the medically needy. The federal government would assume 100% of the increased costs; the state has not yet decided to implement this change. The simpler process should produce state and county savings in administration.

[xv] The ACA would consolidate all the income disregards for the children and family categories and for the new eligibles into a single uniform disregard of 5%. This is done in a cost neutral fashion, by averaging the income disregards. The state has not yet decided to implement this requirement.

[xvi] California has over 150 separate AID codes; each has its own eligibility rules. The ACA and accompanying regulations permit and encourage states to consolidate the multiple forms of eligibility and replace now obsolete eligibility codes and rules with far simpler eligibility rules, potentially less than a dozen AID codes. California has not yet chosen to do so.

[xvii] Due to the termination of Healthy Families, California will have children with incomes up to 250% of FPL in Medi-Cal managed care plans and their parents with incomes between 133 and 250% of FPL in Covered California plans. Families would have to navigate two separate bureaucracies, plans, and delivery networks. California is considering a “Bridge Plan” to allow families with incomes up to 200% of FPL to enroll in the same Medi-Cal managed care plan and delivery network.

[xviii] The ACA requires a simplified eligibility process, which will be largely computer-based, to apply, verify eligibility, and choose plans and providers. Redeterminations are also to be simplified and computerized, and the emphasis is on maintaining continuity of coverage. The process is required to be “no wrong door” and to have multiple avenues to access coverage. The simplified process should produce state and county savings in administration.

[xix] There is a draft three-page application developed by the federal government that is a good starting point. There is as yet no simplified application to view for Covered California, but a series of possible web pages. California has not yet proposed or adopted a simplified process for Medi-Cal. The simplified application should produce state and county savings in administration.

[xx] The ACA and the implementing regulations suggest that annual redeterminations be focused only on items subject to change, that eligibility be approved in one year increments, that individuals notify of any changes during the year. This should produce state and county savings in administration.

[xxi] The ACA creates electronic verifications of citizenship, legal permanent residency and income. If there are discrepancies, an individual must explain and document the reasons for the discrepancy.  This should produce state and county savings in administration.

[xxii] The implementing federal regulations propose to consolidate to the maximum extent possible the Medicaid and Covered California notices and hearings. To the extent that these consolidated hearings are held through Covered California, there should be state administrative savings.

[xxiii] The Exchange covers individuals 133% of FPL and up while the Medicaid (Medi-Cal) expansion covers individuals 133% of FPL and down. California has a number of programs as discussed in note 10 which cover pregnant women, children, persons with HIV/AIDS, with catastrophic medical costs and medically uninsurable conditions which need to be coordinated and subsumed within Exchange coverage. The Governor has proposed a concept of premium assistance as an approach to cover pregnant women and new legal residents in the Exchange. For individuals who can qualify for Exchange coverage, this approach makes sense, and it will generate significant program savings. For individuals who may be among the remaining uninsured, the state needs to design a coherent and accountable system of care and financing.

[xxiv] Many federal, state and county health programs need to be rethought and redesigned in light of the ACA expansions, and the projections and actual numbers of remaining uninsured. Many will be subsumed over time within the ACA expansions as the actual experience of enrollment and program shift occurs. We would suggest that the remaining funds and programs be identified, consolidated, redirected and coordinated as well so that care for the remaining uninsured is available and comparable in each county. The open question is whether financing care for the remaining uninsured should be situated at the state or at the county level or at the provider level. For example private DSH funds go directly to the hospital, whereas public DSH funds go to the county. Emergency Medi-Cal goes from the state to the hospitals and doctors, and FQHC grants go from the federal government directly to the clinics. These operate in silos with no connections. In some counties, the county public health system may be the central organizing place to deliver and pay for this safety net care, but it is imperative that the county play an honest broker role. In others, the counties are not the right place; in these counties, the options are therefore between the state, the local private safety net and a local managed care plan to administer these funds. The entity needs to be transparent and accountable and the funds need to be able to shift to follow the patients and the evolving delivery system.