CHA News Article

Governor Releases 2016-17 State Budget

Today, Gov. Brown released his state budget plan for the 2016-17 fiscal year, a few days ahead of schedule. The Governor proposes allocating much of this year’s $170 billion budget to schools, some to the developmentally disabled and several billion to the rainy day reserve, staying consistent with his past budgets. Tax revenues continue to come in well ahead of projections, but the Governor remains cautious in his budgeting. In his press conference, he emphasized the possibility of another economic downturn and the importance of funding the rainy day fund.

The most significant news in health care is related to the Managed Care Organization (MCO) tax. As part of Medi-Cal, the Governor’s budget again includes a proposal regarding the MCO tax. The current MCO tax, which draws down approximately $1 billion in federal funds for Medi-Cal, expires in June and must be replaced with one that meets updated federal rules. The Governor highlighted the new MCO tax, stating it would pull in $1 billion in federal matching dollars, as well as generate additional money to help pay for in-home care workers and programs for the developmentally disabled. The proposal will require a two-thirds vote of the Legislature, which means at least several Republican votes are needed. This proposal, unlike last year’s, would offset corporate and gross premium taxes paid by health plans and would net the industry $90 million.

The release of the Governor’s budget begins the formal budget process. The budget does not contain any restoration of the Medi-Cal provider rate cuts from 2011. However, throughout the next several months while the budget moves through the Legislature, CHA’s top budget priority will be the elimination of the clawback for the hospital-based skilled-nursing facilities.

Overall, Medi-Cal General Fund spending is projected to increase 8 percent from $17.7 billion this year to $19.1 billion in 2016-17. Caseload will increase again, expected to total 13.5 million people in the upcoming budget year. With these trends, over one-third of California’s population will be enrolled in Medi-Cal. Beginning May 1 of this year, Medi-Cal benefits to undocumented children under 19 years of age will take effect pursuant to SB 75 (Committee on Budget), part of last year’s budget negotiations.

Under the Coordinated Care Initiative (CCI), individuals eligible for both Medicare and Medi-Cal receive care through a single health plan. The CCI is being implemented through a federal demonstration project known as Cal MediConnect. Since its creation, several factors, including lower than expected enrollment, have resulted in the program falling short of financial goals. Under current law, the Director of Finance is required to annually send to the Legislature a determination of whether the CCI is cost-effective. If it is not cost-effective, the program would automatically cease operation in the following fiscal year. If the MCO tax is not extended, the budget projects net General Fund costs for the CCI of $130 million in the budget year and beyond. This budget proposes to continue to implement the CCI in 2016, and the Administration will seek ways to improve participation in the program, but if the MCO tax is not extended and participation is not improved within one year from now, the CCI would cease operating effective January 2018.