How Big are the Projected Medi-Cal Cuts under the Senate Bill in Context of the State Budget?

Laurel Luciaand Ken Jacobs

Under the Senate Republicans’ Better Care Reconciliation Act, California stands to lose over $30 billion in Medicaid funding in 2027 alone, a quick increase from the $3 billion the state would lose in 2020, according to projections by the California Department of Health Care Services (DHCS). These cuts would include reduced federal funding for the expansion of Medi-Cal to low-income adults and a cap on federal funding per Medi-Cal enrollee beginning in 2020, in addition to other cuts.

Beyond 2027, Medicaid funding losses under the Senate bill would continue to grow because federal Medicaid funding would be capped at an even lower rate starting in 2025. The Congressional Budget Office (CBO) projected that the Senate bill would reduce federal Medicaid spending by 26% in 2026, growing to a 35% reduction in 2036.

California would be faced with the difficult choice of eliminating or reducing benefits, reducing eligibility, finding comparable budget cuts outside of health services, raising taxes, or a combination of all these. The state could try to make up some of the federal funding loss by reducing Medi-Cal provider rates, but California already has some of the lowest provider reimbursement rates in the nation, leaving little room for additional cuts.

Thirty billion dollars is an amount of money so large that it is difficult to comprehend. To provide a sense of the scale of what the state would need to make up, we converted the projected lost 2027 federal dollars to 2017 dollars and looked at what that amount covers in the 2016-2017 state budget. The amount of federal funds the state would lose under the Senate health bill is equivalent to:

  1. All state spending for higher education, including the University of California, California State University, and the Community College systems combined; plus the California State Preschool Program; plus child care, cash assistance, employment services, and other services for certain low-income families eligible for CalWORKs; plus Caltrans, the department responsible for the state’s roads and transportation system; plus state parks; OR
  2. The total cost of Medi-Cal coverage for all 3.8 million low-income adults enrolled under the Affordable Care Act (ACA) expansion; plus 1.3 million California children enrolled through the Healthy Families Program (now part of Medi-Cal); plus 180,000 medically needy seniors; plus 65,000 medically needy individuals with disabilities; OR
  3. The total cost of Medi-Cal coverage for 1.6 million adults enrolled in the ACA expansion; plus the total combined cost of the following Medi-Cal benefits: In-Home Supportive Services (IHSS) on which 500,000 California seniors and people with disabilities rely in order to live independently, prescription drug coverage for all enrollees, all dental services for adults, and all services in an Intermediate Care Facility for individuals with developmental disabilities.

The state budget decisions would become more and more challenging each year because the cuts would continue to grow even beyond $30 billion. If California lost 35% of federal Medicaid funding in 2036 (applying CBO’s national projections), that would be approximately equivalent to all of the combined costs for all of the Medi-Cal benefits and eligibility groups listed in the second and third sets of examples above.

The comparisons we make here are by no means recommendations about how California should address the severe federal funding cuts if the Senate bill passes, nor are they predictions about how state policymakers would respond. Rather, they are intended to demonstrate the extremely challenging choices that state policymakers would face in trying to fill the huge budget hole that the Senate bill would create.

Republican leaders argue that states would find greater efficiencies within Medicaid if federal spending per enrollee is capped, but that argument is flawed for a number of reasons. Many states, including California, are already implementing innovative programs that improve care and cost-effectiveness, and they have a strong incentive to do so given that states pay a substantial share of Medicaid costs. One example of California’s efforts is the Medi-Cal 2020 waiver, a five-year effort to improve the quality of care, access, and efficiency of care for all Medi-Cal enrollees. Medicaid costs are already lower than for privately insured individuals with similar health needs, and have grown at a slower rate than for other payers. And California’s costs per enrollee are well below the national average for Medicaid. Additionally, RTI International and Kaiser Family Foundation reviewed the literature on the potential to achieve substantial Medicaid cost savings through initiatives to improve efficiencies and found that the evidence “ranges from limited to mixed to too early to tell.” Finally, analysis of the historical experience with similar payment structures in Canada and the U.S. public benefit programs out of which Medicaid grew suggest that caps on federal funding are more likely to result in a cost shift to states and cuts to the program than in increased efficiencies.

Making tradeoffs between programs this large seems unfathomable, but these are the kinds of budget discussions California policymakers may soon face if the Senate health bill becomes law.