Governor Brown May Revision 2012-13 Budget Proposal
Overview
Governor Jerry Brown released his May Revision of his January budget proposal this morning. The total funding shortfall has increased to $15.7 billion, up from $9.2 billion in January. This will be filled through the following sources:
- Spending Reductions ($8.3 billion, up from $4.1 billion in January)
- Revenue Increases ($8.5 billion with a General Fund ‘net’ of $5.6 billion, up from $5.1 billion in January)
- Other Sources/Funding Shifts ($2.5 billion, up from $1 billion in January).
Issues of Concern to Physicians
Changes to the Governor’s Proposed "Coordinated Care Initiative" for Dual Eligibles
The May Revision proposes to reduce the number of counties in the expanded Dual Eligibles / Mandatory Managed Care pilot program from 10 to eight. The initial four counties are Los Angeles, Orange, San Mateo, and San Diego. In January, the governor proposed to add an additional six counties (San Bernardino, Riverside, Santa Clara, Contra Costa, Alameda, and Sacramento); now only four will be included. It is not yet public which two counties were removed from the demonstration.
The effective start date for the transition has been moved from January 1, 2013, to March 1, 2013. However, this will not impact the open enrollment period, during which dual-eligible patients in the pilot counties may elect to "opt out" of the shift into Medicare Advantage / managed care. That open enrollment is still proposed to begin on October 1, 2012, and, despite the extension of the pilot’s start date, will still end on December 31, 2012.
In addition, the total amount scored in savings for this proposal has been reduced from $678.8 million in the 2012–13 budget year to $663.3 million, and down from $1 billion to $887 million per year in the out years, once the program is fully implemented.
CMA opposes expanding the duals pilots projects beyond the four counties authorized in law.
Healthy Families Program Rate Reduction Still in Place
The January budget proposed to shift Healthy Families program enrollees into the Medi-Cal program, and also reduce the rate paid to health plans for each beneficiary. The total savings scored for this shift was $64.4 million. The Revision maintains the Administration’s commitment to cutting the rate paid for covering these individuals, but adjusts the monthly per-member per-month amount upward to $83.91 from $76.86. The current rate paid to Healthy Families plans is closer to $103 per-member-per-month. This reduces the savings scored from this rate reduction to $48.6 million.
The May Revision continues the governor’s proposal to eliminate the Healthy Families program over time and transition the children into Medi-Cal managed care. CMA has endorsed a proposal developed by AAP and others to transition only those children who will move into Medi-Cal as a result of federal health reform (the “Bright Line” children).
Potential Increase in Emergency Room Copayments in Medi-Cal
The May Revision assumes the collection of copayments of $15 for nonemergency use of the ER, as well as $1–$3 copayments for pharmacy services. These proposals are scored for $20.2 million in General Fund savings in 2012–13. Existing law contains authority for providers to collect $5 copayments for nonemergency use of the ER, but it is not required, and the funding is not remitted to the state.
Proposition 10 Funding Reduction
The May Revision proposes to shift $40 million from the First 5 California Children and Families Commission to the state’s General Fund to fund Medi-Cal services for children under the age of five.
Physicians’ Advocacy Drives Change in the Governor’s Budget
A portion of the increased shortage in the state’s financial shortfall is directly attributable to CMA’s legal and advocacy efforts. The May Revision contains an increase in state costs of $245.5 million in 2011–12 and $174.6 million in 2012–13 as a result of court ruling preventing Medi-Cal provider payment reductions. In addition, the Revision includes an increase in state costs of $555.3 million in 2012–13 as a result of the federal government’s denial of the state’s efforts to impose copayments on the Medi-Cal population for physician services, pharmacy services, hospital inpatient stays, and other services.
Timelines and Next Steps
Now that the governor has released his May Revision budget proposal, the budget committees in both houses of the Legislature will be meeting regularly over the coming weeks in order to finalize work on the budget bills. CMA will be actively lobbying against reductions to healthcare programs and will inform members and staff as appropriate.
The governor’s temporary tax initiative will appear on the November 6, 2012, general election ballot. CMA is officially supporting the initiative in an effort to eliminate the state’s ongoing structural deficit and the negative impact it has on vital public programs such as Medi-Cal.
Filling the Gap: How the Additional Budget Shortage is Met
Although they don’t directly impact the physician community, the May Revision includes additional "savings" needed to fill the gap between the $9.2 billion shortfall projected in the January budget, and the $15.7 billion shortfall facing the state today upon release of the Revision. Details on the new cuts, revenues, and fund shifts are below.
Additional Spending Reductions:
- Local trial court support — shift to local funds for state general fund savings: $544 million
- Hospital and nursing home Medi-Cal reductions: $396 million
- Reducing In Home Supportive Services / IHSS hours by 7%: $99 million
- Altering funding formulas for the CalGrant program: $38 million
- Reducing state employee compensation by 5%: $402 million
- National Mortgage Settlement proceeds used to offset general fund costs: $292 million
- Transferring cash assets previously held by redevelopment agencies to the state: $1.4 billion
- Proposition 98 (K–14 education funding) adjustments: $1.5 billion
TOTAL: $4.67 billion
Additional Revenue Increase
Governor Brown’s temporary tax increases will be placed on the fall 2012 general election ballot. The proposed initiative increases the state sales tax by one quarter cent for four years. It also increases the personal income tax by 1% for those earning between $250,000 and $300,000; 2% for those earning between $300,000 and $500,000; and 3% for those $500,000 and above.
The proposed initiative would generate to $8.5 billion. $2.9 billion of that amount will be set aside for schools and community colleges (K–14 education), leaving a remainder of $5.6 billion for the state general fund. This is an increase of $500 million over the amount the initiative was slated to generate in January.
Other Sources/Funding Shifts
- Loan Repayment Extensions: $1.2 billion
- Transfers and Loans From Special Funds: $612 million
- Additional Weight Fee Revenues: $385 million
- Unemployment Insurance Interest Payment: $312 million
- Other: $49 million
TOTAL: $2.5 billion