Medicaid Rule May Cost State $400 Million

The federal government has notified California officials that the state will have to pay a bigger share of the cost of Medicaid and other joint federal-state health programs for the poor beginning in mid-2002.

The state stands to lose more than $400 million it had counted on to help pay for poor people’s medical bills, or about 3% of the amount provided by the federal government this year.

“We really need the money,” said Glen Rosselli, undersecretary of the California Department of Health and Human Services, which presides over a vast network of services helping nearly 6 million residents.

The notification followed a proposal Tuesday by the Bush administration that could slash more than $300 million a year in payments to hospitals that care for large numbers of uninsured people. That change would be phased in through the end of the decade.

The newest cuts, however, will come all at once in California’s 2003 fiscal year, which begins July 1. California is the biggest loser under new calculations that set the levels for federal and state contributions to Medicaid and other health programs for the poor.

California officials plan to maintain all the services for the poor offered by Medi-Cal--the state’s name for Medicaid--and the other programs, which include low-cost health insurance for children, home attendants for the disabled and alcohol and drug rehabilitation. But the state will have to finance them with less help from the federal government, even though its population of eligible poor people is growing.

That is because the formula for calculating each state’s federal contribution is based not on the size of its poverty population but on the average income of all its residents over the preceding three years.

That has made California a financial loser because it has relatively large numbers of people at both ends of the income scale. The state has 12% of the nation’s population and 14% of those living in poverty. Yet it now receives only 11% of the Medicaid dollars because its sizable high-income population gives the state a relatively high average income.

Next year’s Medicaid allocation will squeeze even tighter because it will reflect income changes in the last three years. During that period, when business was booming and California was riding the high-tech wave, the state’s per capita income rose at an 8% rate, compared with 5% for the nation as a whole.

This year, under the old data, the state and federal government will split almost evenly the $26-billion cost of Medi-Cal and the state’s other health programs for the poor. When the new income data are fed into the formula for determining the state’s share next year, California will receive about $400 million less than it would have with the old income data.

New income data also will punish some other states, but only by a total of $200 million. Florida, which will come out about $250 million ahead, is at the top of the list of states that will gain the $600 million to be relinquished by California and the other losers.

As California struggles with looming budget deficits, Rosselli said, officials are beginning to worry “that the federal government is becoming consistently unreliable. They promise help and they don’t deliver.”

California would like Congress to block the use of the new income data, but this idea is not likely to win favor from lawmakers in Florida and the other states that would gain.

The California congressional delegation also faces an uphill battle in its effort to protect federal support of state hospitals that serve poor communities.

“There is an opportunity here to help California and other states struggling with the impact of the recession, but I am not sure the federal government will take this opportunity,” Rosselli said.

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