Despite Budget Resolution, Medi-Cal Crisis Endures

Three months late, governor Schwarzenegger has finally signed a budget. Unfortunately, the governor and legislators missed the chance to wrangle Medi-Cal, the state’s Medicaid program, under control.

The budget agreement held the line pretty well on this gargantuan program for the short term appropriating 14.5 billion for 2008-2009 versus $14.2 billion last year. But that’s not the whole story: total Medi-Cal spending will be more than twice as much, $39.4 billion, because the federal government pays the state for most of it.

But Medi-Cal’s long-term spending trend is still out of control: Between 1997-1998 and 2006-2007, MediCal spending increased at an annual rate of 7 percent, nearly doubling. And fully one third of this increase was due to increased enrollment. Because of the federal matching payments, California has an incentive to enroll more and more people into government dependency for their health care.

But Medi-Cal does no favors for providers: In 2003, Medi-Cal paid physicians only 59 percent of what Medicare (itself a poor payer) paid, on average. And the situation got worse when California started drifting into this year’s budget crisis. During the special session last February, the governor signed a bill rolling back Medi-Cal providers’ fees by 10 percent, starting July 1. Doctors and pharmacists argued that the roll-back violated federal Medicaid law, and a federal judge agreed. So, the state has partially restored the cuts imposed last summer, but continues its appeal.

The governor and legislature must be pretty confident they will prevail: The budget extends the 10 percent payment cut until March 1, 2009, after which providers will get some relief.

Or maybe not: even if the federal court decision stands, and blows up the roll-back, the state couldn’t pay providers what the judge demands anyway. In fact, the “annual” budget doesn’t really even cover the whole fiscal year. There will have to be a special election (likely next March or June) to authorize borrowing $5 billion against future lottery receipts.

So, despite years of out-of-control spending, Medi-Cal still fails both providers and patients. At its core, the problem is not a budgetary crisis: it’s a crisis of government dependency.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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