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California's Health Budget, In The "Pretzel Palace of Incredible Complexity"

Wednesday, June 27, 2012

There are few agencies in state government whose responsibilities touch the lives of vulnerable Californians as personally and directly as the Health and Human Services (HHS) Agency.

At the same time, the agency itself is vulnerable, year after year, to deep spending cuts as the annual ritual of wrangling the chronic budget deficits pits this area of spending against other public priorities, such as education and public safety.

Why focus cuts on HHS?

In part, to paraphrase Willie Sutton, it’s where the money is.  Representing nearly 30% of California’s General Fund budget over time, HHS programs must be a part of any budget-reduction effort.  And, because entitlement programs are counter-cyclical in nature, many HHS programs have been among the faster-growing programs in state government, particularly during economic downturns.

In an environment of perennially constrained resources and growing demands, state policymakers must move beyond piecemeal solutions and enact structural reforms to curb the growth in HHS spending while maintaining access to essential services for vulnerable residents.

One of California’s large umbrella agencies, HHS oversees a diverse array of departments and boards that provide essential services to millions of the Golden State’s most vulnerable and at-risk residents.  Agency programs include no- and low-cost health coverage for 8.6 million low-income adults and children through the Medi-Cal and the Healthy Families Programs, cash aid for 1.3 million seniors and people with disabilities, cash aid and work support for 587,000 low-income families through CalWORKs, in-home services to support the independence of 434,000 seniors and people with disabilities, and institutional care for 8,000 individuals with severe mental illness or developmental disabilities.

Taken together, these programs provide a safety net for state residents in need of temporary assistance, as well as those with longer-term challenges that impede their ability to live independently, or to become self-sufficient and self-supporting.

Generally speaking, these services are not required under federal law.  Rather, the federal government provides states with significant resources to support state capacity to provide health care, cash assistance, and other services to vulnerable populations.  States, in turn, have discretion to use federal resources to expand services to low-income populations, consistent with state priorities, resources, and values.

Relative to other large states, California policymakers have supported a fairly extensive safety net, even after the budget cuts in recent years.  For example, California is currently home to roughly one-third of the nation’s welfare recipients, even though the state represents just over 10% of the population.

Another example: California is the only state in the nation that’s established an entitlement to services for people with developmental disabilities.  And no other state has an in-home services program for seniors and persons with disabilities of the size and scale of California’s.

Of particular note, over the years state policymakers have expanded Medi-Cal coverage beyond the minimums required by federal law.  These coverage expansions reflect the high priority policymakers have placed on access to medical care for low-income people.

Yet even though California runs one of the most cost-effective programs in the nation, Medi-Cal alone represents the second-largest component of state spending.  This is an investment that will grow with rising health care costs and full implementation of federal health reform, which will add 2-3 million people to the program.

These and other HHS programs provide a critical safety net of service – and they come at a significant cost.

In the budget just passed by the Legislature, HHS programs account for $26 billion of the $91 billion budget for fiscal year 2012-13.  Four spending areas alone – Medi-Cal, CalWORKs, in-home supportive services, and developmental disabilities—account for over 70% of total HHS spending.

The focus on HSS spending is also the product of a state budget that California Gov. Jerry Brown has described as a “pretzel palace of incredible complexity.”

Voter-approved initiatives and court mandates have created formidable constraints around major segments of the non-HHS budget.  Exhibit A is the mind-numbingly complex formula that dedicates at least 40% of the state’s General Fund to K-12 education under California’s Proposition 98.

Another example is state spending on corrections, which has nearly doubled to 11% of the state general fund over the past 10 years.  This increase is the product of a rapidly growing prison population, fueled in part by tough-on-crime measures approved by voters and federal court mandates to improve prison medical and mental health care deemed constitutionally inadequate. Finally, other initiatives have locked-in dedicated funding streams for specific purposes.

Political considerations also make health and human service programs a perennial focus for budget reductions.  It’s generally recognized, for example, that the populations served by HHS programs lack the political clout of teachers, prison guards, or public employee unions.  Moreover, in the context of the pending budget and the upcoming voter consideration of the Governor’s $8.5 billion tax measure in November, Gov. Brown and his allies will want to demonstrate that the state is reducing spending on an ongoing basis – a factor that likely contributed to the recent showdown over CalWORKs reforms and reductions.

Taken together, the size and growth of HHS spending and the significant guardrails around large portions of the state budget expose HHS spending to deep reductions.  HHS cuts of the magnitude proposed this year by Gov. Brown and his immediate predecessors raise understandable fears regarding the adequacy of the state’s safety net.

At the same time, Gov. Brown – as well as previous governors – put on the table some significant structural reforms to “bend the cost curve” in large and fast-growing programs within HHS.  Among them are proposals to transition people eligible for both Medi-Cal and Medicare to a more organized, coordinated system of care; restructure CalWORKs to focus on the goal of work; and scale back in-home services to recipients residing in a shared living arrangement.

Looking at the current debate around HHS spending for fiscal year 2012-13, reasonable people can disagree about the depth of the Gov. Brown’s proposed HHS reductions and the need for and allocation of new revenues generated by the November tax initiative.  Indeed, the Legislature scaled back many of the governor’s HHS proposals, opting for more modest cuts and incremental program changes.

But there can be no disagreement regarding the gravity of the state’s enduring budget crisis, the need for HHS spending reductions as a part of any budget solution, and the imperative for structural changes that would improve the effectiveness and efficiency of all state programs.

Belshé is a senior policy advisor at the Public Policy Institute of California (PPIC) and the former secretary of California's Health and Human Services Agency under Gov. Schwarzenegger.

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