Schwarzenegger’s revised budget plan is expected to eliminate health programs


Reporting from Sacramento

Gov. Arnold Schwarzenegger is expected to present a revised budget plan Friday that would dismantle some of California’s landmark healthcare programs after efforts to scale them back have been reversed by federal courts.

The rulings, issued mostly over the last two years, have already forced the state to unwind roughly $2.4 billion in cuts approved by the governor and Legislature and have alarmed other financially strapped states seeking ways to balance their budgets.

Schwarzenegger has lashed out at the federal judges, saying they’ve been “going absolutely crazy” and accusing them of interfering with the state’s ability to get its finances in order.

The rulings tie their hands, administration officials say, and they are asking the U.S. Supreme Court to intervene in a petition supported by 22 other states.

“We can’t make any changes to these programs,” said Susan Kennedy, the governor’s chief of staff. “Anybody can just walk into a courthouse and freeze them.”

Administration officials declined to reveal which specific programs the governor would eliminate. But officials involved in the budget process, who spoke on condition of anonymity because they are not authorized to speak publicly, said they would probably include home healthcare for the elderly and disabled, a nearly $2-billion program that serves 440,000 Californians. Cuts that lawmakers and the governor made to the program in an effort to balance the budget have been blocked by legal rulings over the last year.

The court decisions restrict their ability to make cuts in the programs, officials said, but they don’t preclude dismantling them. Abolishing home healthcare services would mean forfeiting the federal Medicaid money that helps fund them. But the money comes with requirements that the courts said California did not meet. The state would not have to follow the requirements if it did away with the program, and thus would no longer risk having its financial plans upended in court.

The Schwarzenegger administration may also propose the dismantling of the Healthy Families program, which uses federal money to help provide health insurance for about 900,000 low-income children. The administration warned in January that it would try to abolish the program if the state’s budget situation did not improve – which it has not. The deficit remains swollen at $18.6 billion, or roughly 20% of general fund spending.

“It is a terrible situation,” said Sara Rosenbaum, a professor of health policy and law at George Washington University in Washington, D.C. “If you take the federal money, there is an obligation to comply with the rules….But it has reached this extreme in California where the state is saying, ‘We just won’t run the program.’ ”

The other states have signed on to California’s effort at the U.S. Supreme Court because they fear precedents set by the California rulings in the 9th Circuit Court of Appeal expose them to similar litigation. The Supreme Court is expected to decide next month whether to hear the case.

“Michigan shares California’s concerns,” said Tiffany Brown, a spokeswoman for Michigan Gov. Jennifer Granholm. Officials there are concerned that their ability to administer Medicaid funds has become “hindered,” Brown said.

Washington state is also supporting California’s legal battle. Federal courts recently unraveled cuts there affecting payments to pharmacies and nursing homes.

“The inability to take prompt action to reduce payment rates to providers has caused a problem,” said Bill Stephens, a Washington assistant attorney general.

The court fight raises new questions about the viability of the national healthcare overhaul signed into law by President Obama earlier this year. The federal legislation assumes a substantial expansion of the costly Medicaid programs that officials in California and elsewhere are proposing to abandon.

Schwarzenegger’s proposals, meanwhile, would face stiff opposition in the Legislature, where there is limited support for taking apart the state’s healthcare system. Providers and advocacy groups that have successfully sued the state to block the previous cuts are also working with the Democrats who control the Assembly and Senate to preserve services.

“The state is …rushing to make budget decisions without doing due diligence to follow the federal standards,” said Andrew LaMar, spokesman for the California Medical Assn., which represents 35,000 California physicians and has sued to block cuts in reimbursements to doctors.

Anthony Wright, executive director of Health Access, a consumer advocacy group, said that even before the latest round of cutbacks, California paid its doctors and other Medicaid providers among the lowest rates in the nation. More cuts to Medi-Cal, California’s Medicaid program, would undermine it, he said.

“If you further cut provider rates, you potentially make it that Californians with Medi-Cal simply will have no doctor,” Wright said. “If the state wants federal matching funds for the programs, they need to keep their end of the bargain.”