Stateline Story

With Medicaid Waiver, California Dives Into Health Care Reform

  • November 19, 2010
  • By Christine Vestal
Nearly missed in the noise from newly elected politicians vowing to upend the Obama administration's health care reform law was a federal decision allowing California to start implementing it — and improve its fiscal situation in the process.
On Election Day, California got word it would receive $10 billion in federal Medicaid money to extend coverage to some 500,000 people who are currently uninsured. The initiative means the nation's most populous state will dive right into the new health law's biggest challenge: providing coverage for low-income adults who are not eligible for Medicaid, the federal-state health insurance program for the poor.
The plan, which the state calls a "bridge to reform," is also designed to bolster the state's safety-net hospitals, as well as lower overall health care costs. Under the Nov. 2 agreement — a waiver of standard Medicaid rules aimed at allowing states to test innovative new programs — California promised to shave $2 billion per year from its existing Medicaid bill by streamlining care for its highest-cost recipients: seniors, adults with disabilities and children with severe illnesses. The federal government agreed to give California $2 billion per year in return.
"It shows that a state can take advantage of health care reform — as adopted — and do it in a way that is to its best advantage," says Vernon Smith, director of the consulting firm Health Management Associates.
Since President Obama signed the health care overhaul in March, California has taken other big steps toward implementing the law. In September, California enacted legislation creating a health benefit exchange where consumers and small businesses can shop for and buy affordable health insurance starting in 2014. And last month, the state opened its high-risk insurance plan for those who cannot get private insurance because of pre-existing medical conditions.
California's embrace of the federal law stands in contrast to the growing protests coming from states whose leaders oppose it. Last week, conservative lawmakers in Texas called for the state to consider opting out of Medicaid altogether — a possibility currently under study by the Texas Health and Human Services Commission. Some 20 states have signed onto a lawsuit alleging the requirement that citizens and legal residents must have qualifying health coverage or pay a penalty is unconstitutional. Similarly, seven states have enacted statutes or constitutional amendments that would make mandatory-insurance requirement illegal. Meanwhile, Indiana, Mississippi and Nebraska have commissioned studies predicting that the planned expansion in Medicaid will be a big drag on their state budgets.
Broad support
In California, criticism is limited to the mechanics of how to implement the federal law, rather than whether to implement it. For example, advocates for the elderly and disabled question whether the savings California has promised can be realized by requiring the state's most vulnerable population to enroll in managed care programs. Too often, they argue, managed care organizations keep a lid on costs by skimping on routine care. In the end, they say, some people will get sicker and require more expensive care, erasing any cost savings.
Still, even critics — who along with the medical community and other stakeholders took part in more than a year of public hearings on the proposal — say that California's new plan is a positive development, particularly given the state's dire fiscal condition. The state's budget deficit through the middle of 2012 is more than $25 billion.
"We're excited about the federal money coming in," says Anthony Wright, director of Health Access California, a consumer advocacy group.  "Our health care system and safety-net hospitals are in a very tough place."
According to California Medicaid director Toby Douglas — who spearheaded the waiver — the state got everything it asked for, and the federal government improved upon its request by making sure all of the details were in synch with health care reform.
Essentially, the new waiver gives California federal money to do something it's been doing with state and local money for a long time, he says.  But instead of providing "episodic" care, Douglas says the federal money will allow counties to provide more coordinated, comprehensive care at lower costs.
Since the mid-1970s, California counties have used property tax revenues and some federal money to provide a variety of health care services for the poor and to reimburse local hospitals for uncompensated care for the uninsured. In 2005, an earlier Medicaid waiver allowed 10 of the state's 58 counties to launch what is known as a "coverage initiative" for low-income adults, providing health maintenance services as well as acute care.
The new waiver allows those 10 counties to expand benefits for the nearly 200,000 adults who already have enrolled, gradually moving them up to full Medicaid benefits by the time most parts of the federal law take effect in 2014. In addition, other counties can apply for federal dollars to launch their own initiatives.
A seamless transition
The idea is to make county health plans consistent and bring them all up to full Medicaid benefit levels by 2014.  On Jan. 1, income-eligible people receiving county coverage should be able to automatically switch to Medicaid — or Medi-Cal as it's known in California — without filling out any more paperwork.
California is not the only state that has expanded health coverage through a Medicaid waiver; Massachusetts and New York also have used federal dollars to cover hundreds of thousands of uninsured adults who otherwise would not be eligible under standard Medicaid coverage. But California's most recent waiver is the first one since health care reform was enacted and thus serves the dual purpose of creating a model for other states.
Here's how it will work:
By January, California will begin categorizing adult health care eligibility and benefits along the lines the federal health care law envisions but does not require until 2014. In counties that decide to participate, adults between the ages of 19 and 64 whose incomes are below 133 percent of the federal poverty line will become eligible for Medicaid-like services. In addition, counties can offer health services for adults with incomes between 134 and 200 percent of poverty.  In 2014, the lower income group will move into Medicaid and the higher income group will receive federal subsidies to purchase private insurance.
To cut costs, California will transition seniors and adults with disabilities into a managed care program and test more efficient health care models for children with severe medical conditions such as cerebral palsy, muscular dystrophy and spina bifida.
The state also will receive federal money to help support safety-net hospitals that provide uncompensated care to uninsured people. In addition, a funding pool will be established to encourage public hospitals to test strategies such as creation of "medical homes" and investments in training and technology aimed at improving service and slowing runaway costs.
In the months ahead, the state Medicaid agency will work with counties to develop new health coverage plans and reach out to low-income people who might qualify. "We've been patting ourselves on the backs," Douglas says. "Now it's time to actually implement the waiver. We have a lot of work to do."