In health and human services, demand grows while funds shrink

Kim Belshe

California enters 2010 in extraordinary fiscal circumstances, with a significant structural budget deficit that continues to require spending reductions in all areas of state government.

At the same time, caseloads in our state’s biggest health and human services programs have grown dramatically in recent years, a reflection of both policy decisions to support the state’s safety net as well as the more recent dramatic economic downturn.

We are facing something akin to a perfect storm of growing need and reduced resources – with a downward spiraling economy that is driving more residents out of jobs and into public safety net programs at the very time state revenues to meet essential public needs have dropped dramatically.

* Next year, Medi-Cal is expected to serve 7.5 million people, an increase of more than 870,000 people, or 13 percent, in the last three years.

* CalWORKs cases have increased more than 14 percent in the last three years, with more than 71,000 new cases added to the state’s main welfare program for families.

* The number of developmentally disabled individuals in California continues to climb as autism diagnoses increase, with a 45 percent increase in the caseload in the last decade.

* The In-Home Supportive Services program has grown dramatically as well, with a 71 percent increase in the number of recipients in the last 10 years.

Health and Human Services (HHS) expenditures have grown by 43 percent over the past 10 years, while state revenues have increased by 23 percent.

California faces a fundamental disconnect between the revenues coming into the state and the expenditures required by current program obligations – an extraordinary gap that requires a serious and sober discussion of the state’s priorities and values. With budget crisis after budget crisis, we face the same challenging question: how do we manage the cost of health and human services programs as demand goes up and revenues go down?

In January, Governor Schwarzenegger proposed solutions to bring California’s budget back into balance for fiscal year 2010-11.

These proposed solutions reflect the Governor’s priorities for the state: no new taxes; full funding of education’s Proposition 98 guarantee; better alignment of prisons and HHS spending with other states; and greater federal program flexibility and more equitable federal funding.

Proposals to reduce or eliminate a number of HHS programs – such as the elimination of the Medi-Cal optional adult day health care program and the dramatic reduction in In-Home Supportive Services — represent reductions in optional benefits not offered by most states.

These proposals have been met with tremendous opposition. Concerns have been raised that services reductions will harm some of our state’s most vulnerable, disadvantaged residents. Opponents also argue we are sacrificing federal funds by not investing in programs that bring federal support. By definition, these proposed reductions will impact people in need and will have real consequences. It is also true that reducing state funding does result in a loss of federal support. That being said, we have to have the dollars to begin with to maintain our investment in these programs.

Some believe more tax revenue is the answer and that Californians must be persuaded to pay more taxes to support the state’s growing health and human service needs and protect the safety net from any cuts. It is an intellectually honest approach.

Unfortunately, it’s not a realistic one in this economic and political climate.

It is well understood in the corridors of the Capitol that health and human services will face reductions next year.

History shows us that when budgets fall out of balance, legislators and governors prioritize spending for education over funding for health and human services. Absent the Constitutional protections afforded K-14 spending and the judicial interventions that direct much of the state’s correctional spending, HHS is vulnerable to budget reductions. It is a difficult and unfortunate irony that the Agency that is charged with overseeing services and supports to our state’s most vulnerable, at-risk and underserved residents is the Agency most vulnerable to budget reductions.

While much of the policy and political debate will be about where budget solutions are best secured, there can be no doubt that reductions will occur in HHS. The salient question for advocates, stakeholders and recipients is how do we achieve savings in health and human service programs in ways that make the most sense and do the least damage?

As the second-largest program in state government and one of its fastest growing, Medi-Cal has to be part of the solution.

In fiscal year 1998-99, the annual cost per Medi-Cal recipient was $2,925. Ten years later, the cost had grown to $4,549 per recipient. The overall cost of Medi-Cal has nearly doubled in 10 years, from $19 billion in total funds 1998-99 to $37 billion in total funds in 2008-09.

The growth in Medi-Cal is putting significant and growing fiscal pressure on the state’s general fund.

In recent years, Governor Schwarzenegger and the Legislature have attempted to modify optional benefits to those most in need, change eligibility processes for some groups, and lower the rates paid to physicians and facilities for medical care. Many of these changes have been blocked by federal law or federal Court decisions, and $1.4 billion in savings has been lost. With optional benefits, for example, federal court decisions have effectively left the state with an untenable choice: either eliminate an entire optional Medi-Cal benefit – which Courts have upheld – or continue to provide a benefit that, as currently structured and governed by federal rules, is unaffordable to the state.

Now we must look to find other ways to save. Among them, the Governor’s budget proposes saving $750 million by instituting beneficiary cost-sharing, service limits or benefit caps – an approach adopted by many states.

It’s not easy to make changes that reduce Medi-Cal costs in these ways, but we have to find ways to come together to slow the rate of growth in the program if it is to survive. And, we must find ways to stabilize the program so that it can successfully serve as the foundation for more comprehensive health care reform when and if it comes.

Medi-Cal is not the only area where we need to achieve savings. Many other health and human service programs face reductions in the proposed budget as well.

However, an equally significant aspect of the budget is the Governor’s call for the federal government to provide California with billions of dollars in monies owed as well as flexibility to manage program costs within state resources.

It’s difficult to overestimate how critical it will be to secure the $6.9 billion in federal funding owed to the state next fiscal year and relief from federal rules and court decisions. President Obama’s proposed budget would extend the stimulus act, providing roughly $2 billion of these funds – an important down payment. We urge stakeholders to join the Governor and legislative leaders in their advocacy for federal funds owed, more equitable funding formula, and greater program flexibility.

In the absence of the federal government being a fuller partner with the state in support of the nation’s lowest-cost Medicaid program, the Governor’s budget proposes $3.5 billion in additional HHS spending reductions – cuts that reflect programs that are not required by federal law, including Healthy Families, CalWORKs and the In-Home Supportive Services program.

The years of making minor adjustments to health and human service programs to achieve modest savings are behind us for some time. With court action blocking bipartisan efforts to achieve savings in these programs, our options are getting narrower every year. Real conversations must begin now on how we control the growing costs of health and human services in our state, and how we preserve them going into the future.

There are opportunities before us in the near term to advance necessary and overdue program improvements and more responsible cost control strategies through delivery system reforms – namely, through renewal of the Medi-Cal financing waiver.

The waiver provides an opportunity to “bend the Medi-Cal cost curve” by supporting organized heath care delivery systems that ensure better coordination of care and more efficient use of public funds to assist seniors and persons with disabilities – the vast majority of whom receive their care through an uncoordinated fee for service system that does not integrate primary, acute, substance abuse, mental health, social and long-term care support needs.

The waiver also offers an opportunity to expand health coverage beyond the150,000 low-income Californians covered by our current waiver. Through the current waiver, counties have advanced innovations in specialty care and network development, and creating efficiencies in health care delivery. Through the new waiver, California can build upon and strengthen that foundation.

We recognize and anticipate the issues and concerns regarding pending budget proposals raised by stakeholders, advocates and others. We understand and acknowledge the advocacy efforts that advocates have and will continue to bring to the difficult decisions facing our state.

Reasonable people can disagree on the scope and nature of the proposed budget reductions, but there can be no disagreement regarding the gravity of the budget crisis, the urgency for action and the need for leadership to chart a course through difficult fiscal times.

The Governor’s proposed budget can begin the discussion.

Kim Belshé is secretary of the California Health and Human Services Agency.

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