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California could take big hit from healthcare overhaul

The landmark federal reforms could cost the state $2 billion to $3 billion annually. State officials say there needs to be more of a partnership with the U.S. government.

March 24, 2010|George Skelton | Capitol Journal

From Sacramento — Figure $2 billion to $3 billion. That's the state of California's rough estimate of what national healthcare expansion ultimately will cost it each year.

Forget the Washington gobbledygook about it saving the federal treasury money over the next 10 or 20 years. Nobody seems to be able to predict federal spending over a two-month period, let alone two decades.

But if the feds do realize a net gain, as backers of the legislation predict, it will be at the states' expense.

While Democrats in Washington have been rejoicing in victory and Republicans have been predicting Armageddon, California officials have been quietly pondering the numbers.

And it isn't necessarily contradictory to both support a national healthcare overhaul and acknowledge that it's likely to be another hit on California's bleeding budget. That's just intellectually honest.

As Gov. Arnold Schwarzenegger put it after the U.S. House passed the legislation Sunday night:

"I have always supported the need for comprehensive health reform. However, for healthcare reform to succeed, states must either have the flexibility to live within the revenues that are available to them or the federal resources to fully fund its mandates."

On Wednesday the governor told reporters that Washington has "shifted the funding from the federal government and said, 'Hey, you state, we want to cut down on our deficit. So you pick up the difference. . . .' And it will cost us $3 billion more."

Schwarzenegger has been trying to tread lightly, expressing dissatisfaction with Congress' final product, but not criticizing President Obama, whose goal of reform he strongly supports.

The governor struck out taking a big swing at passing his own healthcare reform for California in 2007, partly because legislators concluded the state couldn't afford it as the economy began tumbling.

Now the burden of implementing the federal healthcare expansion will fall on the states through their various Medicaid programs. In California, it's called Medi-Cal.

"States are in such deep financial straits that not only have we already made [Medicaid] cuts, but we're looking to make even deeper cuts," says Kim Belshe, secretary of the California Health and Human Services Agency.

"Now we're being asked to begin planning for the biggest implementation of a social program since Medicaid was created. . . . Medicaid is crumbling. It makes no sense to be building on a house that's falling apart. . . .

"This needs to be a partnership with the federal government. If Medicaid is going to be the foundation for broad healthcare expansion -- and right now it's very fragile -- we need changes in program flexibility and equitable financing," Belshe says.

The Schwarzenegger administration has been seeking flexibility from Washington to pare back certain benefits, such as In-Home Supportive Services, and to tighten eligibility requirements for such programs as Medi-Cal and Healthy Families.

The $2-billion to $3-billion rough estimate of net state costs for the federal program comes from Belshe's shop. It's $1 billion less than the price tag calculated in December for a Senate-passed bill.

In a letter then to House Speaker Nancy Pelosi (D-San Francisco), Schwarzenegger warned that "this crushing new burden will be added to a [state] safety net that is already shredding under billions of dollars in unfunded federal mandates."

The House gave states more money than the Senate did for Medicaid expansion, which will begin in 2014.

Under the final version, the feds will pay 100% of the cost for new Medi-Cal enrollees for two years, reduce it to 95%, then permanently kick in 90% starting in 2020. That's a good deal, but not the whole story. The largesse will cover only those new recipients who qualify under the overhaul's looser eligibility rules.

The feds won't be nearly as generous for another group of new enrollees, providing only 50% of the cost. These are the people who currently are eligible for Medi-Cal and for whatever reason -- perhaps stigma -- haven't signed up. But under the new law, they'll be forced to obtain insurance. And it's estimated that half will go into Medi-Cal.

Actually, as part of the federal economic stimulus, the feds now are paying 60% of Medi-Cal costs, rather than 50%. But that's only temporary.

Nobody in Sacramento pretends to thoroughly understand the complex new legislation or its potential impact on the state budget. Only that it will be a drain.

The federal government will fund higher reimbursements for primary care physicians who treat Medi-Cal recipients, but only for two years. Who pays after that?

There'll be start-up costs of many millions in an administration strapped by civil service furloughs, vacancies and layoffs -- while the front-running Republican candidate for governor, Meg Whitman, vows to eliminate 40,000 more jobs.

"Fundamentally, we all know that the state budget situation is dire and financing for Medi-Cal is precarious," says Marian Mulkey, senior program officer for the California Healthcare Foundation.

"On balance, if the reform is fully realized, a huge number of Californians will get better care.

"But at the same time, the state cost issues are very real. It's hard to imagine this being implemented as envisioned unless we get on a more secure state fiscal footing."

Anthony Wright, executive secretary of Health Access California, calls the overhaul "a boon rather than a burden."

"I don't disagree with the fact that this may cost something," Wright adds, "but the benefit is so much greater."

Yes, this may be a terrific and historic program, but it is going to cost the state money. We shouldn't kid ourselves.

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