UPDATE: Reform Medi-Cal To Reduce Poverty

NB: When writing the essay below, I was unaware that as part of the 2011 Realignment of state and local functions, a portion of General Fund spending on DSS was replaced with Realignment spending. Accordingly, when Realignment spending on social services (from both the 2011 Realignment and the 1991 Realignment as amended in 2011) is added to DSS’s spending, aggregate DSS and Realignment spending on social services totals $14 billion in 2018–19, an amount equal to 10 percent of the General Fund.

Ten years ago, California’s Department of Social Services — whose mission is “to serve, aid, and protect needy and vulnerable children and adults” — received nearly $10 billion, which was 10 percent of the General Fund that year:

This year California’s General Fund is 34 percent larger. But DSS is receiving only $9 billion*, nine percent less than it received a decade ago. As a result, DSS’s share of the General Fund* has dropped 32 percent to just 6.5 percent:

Meanwhile, California has the nation’s highest poverty rate.

DSS isn’t the only loser. UC, CSU and Courts also lost budget share. At Govern For California we refer to DSS, UC, CSU and Courts as “Orphans” because they don’t have powerful special interests to parent them. Together they will receive $18 billion this year, no more than ten years ago. They are being crowded out.

There are several reasons for crowd-out but a big one is fast spending growth at Medi-Cal, the state’s single-payer health insurer for low-income residents. GF spending on Medi-Cal jumped 59 percent, nearly twice the rate at which GF aggregate spending grew. While Medi-Cal isn’t the only program growing faster than the GF (retirement spending grew 130 percent), it’s the biggest.

Total spending this year on Medi-Cal (including special and federal funds) is $104 billion, more than 2.5 times the $39 billion spent on Medi-Cal ten years ago. Yet emergency room visits are up, appointments are often difficult to get, and incentives for providers are too often aligned with boosting revenues instead of health. To us the only clearly visible improvement to health from increased Medi-Cal spending has been to the bottom lines of hospitals and other providers.

That has to change. Too much Medi-Cal spending is the result of unnecessary services, unnecessarily-expensive costs per service, unnecessary limitations on scopes of practice that limit access and raise prices, and unproductive spending on a small percentage of Medi-Cal recipients (“Super-Users”) who don’t always get the care that could reduce their misery and the state’s cost.

This is why the California Legislature and governor must reform Medi-Cal, both to improve health and to stop the crowding out of other state programs. The Orphans lost ground over the last decade when revenues grew 34 percent. Just imagine what will happen to them when the bull market ends and GF revenues fall $20 billion per year for three years as Governor Brown has warned. In the absence of reform, programs of importance to Californians will continue to be squeezed out even as they don’t get healthier.

*Some portion of DSS’s General Fund spending was replaced with Realignment revenues in FY2011–12.