Senate Budget Subcommittee No. 3 Discusses Medi-Cal Expansion to Undocumented Young Adults

On Thursday, the Senate Budget & Fiscal Review Subcommittee No. 3 on Health and Human Services convened to hear items under the Department of Managed Health Care (DMHC) and the Department of Health Care Services (DHCS).

Timely Access and Prescription Drug Cost Transparency Report. DMHC discussed the Timely Access Reports, noting that since 2013, DHMC has levied 6.5m against 65 health plans for failing to meet timely access to care, both in specific instances and for those reflecting consistent patterns. The department also presented  highlights related to the Prescription Drug Cost Transparency Report released in December 2017, new requirement under SB 17 (Statutes of 2017). DMHC noted the report is limited to prescription costs associated with a pharmacy benefit and does not include inpatient costs or those administered by a delegated entity or those from arrangements or plans, insurers or organizations not regulated by DMHC. The report does represent 25 health plans, 148.1 million member months, which annualized is approximately 12.3 million Californians. Key findings include:

• Health plans paid nearly 8.7 billion for prescription drugs administered through their pharmacy benefit;
• Prescription drugs accounted for 13.1 percent of total health plan premiums;
• Manufacturer rebates equaled 915 million or 10.5 percent of 8.7 billion spent;
• Specialty drugs account for over half of total annual spending on prescription drugs; and
• Of the 25 more frequently prescribed drugs, enrollees paid roughly 3 percent of the cost of specialty drugs and 56.6 percent of the cost of generics.

Individual Mandate and State Subsidy Program. The Department of Finance (DoF) presented the Governor’s proposals to institute a state individual mandate and a new state subsidy program and noted that the related trailer bill language had been posted earlier that morning. DoF noted their proposal is modeled closely after federal law and would be administered by the Franchise Tax Board in coordination with Covered California and DMHC. The penalty would be based on income and family size, while maintaining the federal exemptions as codified today. Further the individual mandate would be automatically adjusted should the federal government reinstate the federal penalty associated with the individual mandate and would be deposited into the General Fund.

The new state subsidy proposal would be the first in the nation to cover middle income consumers and would be available to individuals with incomes within 250 to 400 percent of the federal poverty limit (62,000 – 140,000 for a family of four). Subsidies would be subject to annual GF appropriation, be administered by Covered California and provide advanced premium assistance. The subsidy program would sunset December 31, 2022, allowing the federal government time to revisit and address the affordability challenges with the current structure of the ACA. DoF noted the subsidy program closely mirrors the federal framework in place today and must closely mirror the penalties received from the individual mandate, which is estimated at $500 million and will be updated in the May Revise.

Legislators expressed a myriad of concerns around the subsidies being dependent on revenues received from the individual penalty. Key concerns included the risk of individuals having subsidies that vary year to year and the potential for the penalty estimates adopted in June to not be fully realized, meaning there would not be enough revenue generated to cover the costs of subsidies provided. The Administration reiterated the structure being closely mirrored to the federal framework, but noted the Legislatures concerns and agreed to take them back for consideration.

Medi-Cal Expansion to Undocumented Young Adults and AB 85 changes. DHCS presented the Governor’s proposal to expand full-scope Medi-Cal to undocumented young adults ages 19 to 25. The department estimates approximately 138,000 additional individuals would receive coverage under this proposal with a cost of $194 million General Fund and $63 million federal funds (accounting for the emergency and pregnancy services eligible for FFP).

DoF presented the Administration’s proposed changes to AB 85 under the assumption of reduced costs to counties. They noted the increased redirection from 60 percent to 75 percent for the County Medical Services Program and key other counties (Placer, Sacramento, Santa Barbara, Stanislaus, and Yolo) would result in an additional diversion of $63 million. DoF indicated they are aware of county concerns and would be further exploring how money is spent between indigent health and public health services and assessing county feedback.

Peter Beilenson, Director of the Sacramento County Department of Health Services, underscored the impacts to his county including reductions to public health services and services to serve the remaining uninsured. He noted the proposal would result in an additional loss of $7.5 million of health realignment revenues for Sacramento County. In addition, he shared that of roughly 4,000 undocumented individuals the county serves, only 2.5 percent are within the 19-25 age range.

Health Access also expressed concerns with redirecting funding away from counties that would hinder our ability to provide services to the remaining uninsured and core public health functions. They indicated any new formula would need to account for actual savings and ensure the continued provision of these services.

Senator Pan conveyed concerns about the ability for counties to carry out core duties considering a greater claw back of realignment from the State. He talked about key public health issues – outbreaks and STD rates – and how this proposal would harm the resources of local health departments to address them. Amid the concerns expressed, Senator Pan questioned whether this pot – health realignment – is the right pot of money to fund the expansion.

During public comment, several advocates testified in support of the expansion of Medi-Cal to young adults and urged the Legislature to broaden the eligibility to all undocumented individuals that otherwise would be eligible for Medi-Cal. Michelle Gibbons expressed CHEAC’s opposition to increasing the share of realignment that would be diverted from counties and the adverse impacts to key jurisdictions.

Managed Care Organization (MCO) Tax. DHCS provided more detail around the rationale for not including a proposal to renew the MCO tax in the Governor’s January budget, despite the current MCO tax offsetting roughly $1.3 billion in General Fund costs. DHCS indicated that since 2016 only two states  have gained an approved MCO tax. The department also factored in the change in federal administration and other requests California would be seeking, such as waiver renewals. The Legislative Analyst’s Office (LAO) agreed that there is uncertainty around the approval of an MCO tax but noted that Michigan’s recently approved tax is similar to California’s. In addition, the LAO  mentioned that revenues generated through the MCO tax exceed that of the waivers up for renewal and suggested it was worth California pursuing.