State Loses Claim to $740 Million in U.S. Health-Care Funds

California was forced to relinquish, at least temporarily, about $740 million in federal funds on Monday, because it had been unable to spend the money for children’s health care within three years, as required.

But, to the relief of state officials, Congress is expected to extend the deadline on spending the money because about three dozen other states are in the same position.

The problem, health experts say, is that California got a slow start enrolling children in its Healthy Families program, which covers youngsters whose families earn too much to qualify for Medi-Cal but not enough to afford private health insurance.

And now, because of the state’s budget problems, Gov. Gray Davis has postponed a much-anticipated expansion of Healthy Families that would cover low-income parents. The expansion would have allowed the state to draw down more federal matching funds. For every $1 the state spends on the program, the federal government provides $2.

Under the law creating the Children’s Health Insurance Program, states have three years to use their annual federal allocations before the money is redistributed to other states. Ultimately, if the money is not spent, it returns to the U.S. Treasury.

California has paid a steep price for its slow start. In the last two years, it has given up claims to $706 million in unspent federal money from fiscal years 1998 and 1999, according to the Managed Risk Medical Insurance Board, which administers Healthy Families.

In 1998, the federal government allocated $855 million to California, but officials spent only $2 million that year, the agency said. In 1999, the state spent $68 million and received an additional allocation of $851 million.

Advocates for the poor say California officials have made unwise budget choices, which now leaves them with a predicament.

“We feel that the governor and Legislature could have moved much more quickly in expanding the program and using up some of the funds,” said Jim Keddy, director of the PICO California Project, a faith-based network of local organizing groups. “It’s a misuse of funds that should be spent on California families.”

Grantland Johnson, California’s secretary of health and human services, said the spending guidelines created by the federal government have made it impossible for the state to spend its allocation within the time frame. He said the governor has asked the state’s congressional delegation to get more time for California.

When Davis took office in January 1999, Johnson said, about 50,000 children were covered under the Healthy Families program. “As I speak, we cover about 600,000 kids, which is an 11-fold increase,” he added. “There’s no other state that has matched that effort.”

U.S. Sen. Dianne Feinstein (D-Calif.) has been working with the Senate Finance Committee to craft a solution. Her spokesman, Howard Gantman, said that “the state still needs to step up its efforts to ensure no eligible child is uninsured.”

Tom Scully, administrator of the U.S. Centers for Medicare & Medicaid Services, said he had urged Congress to pass a bill giving relief to California and other states.