Another Legislative Possibility for Restoring Medi-Cal Funding

by George Lauer, California Healthline Features Editor

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There is clearly interest in the California Legislature in reversing or reducing the 10% cut in Medi-Cal reimbursements legislators approved in 2011, but how widespread or long-lived that interest might be is less clear. Also hard to predict is the reception such a plan might get if it makes it to the governor's desk.

Two bills introduced last week could reverse or reduce the cutbacks passed during the darkest days of California's budget crisis almost three years ago.

AB 1805, by Assembly Budget Chair Nancy Skinner (D-Berkeley) and Assembly Health Chair Richard Pan (D-Sacramento), is aimed directly at the issue, seeking to restore full funding to Medi-Cal at the estimated cost of about $400 million next year.

Another bill, proposing to tax oil extraction in California, seeks to generate new revenue for the state, some of which could be used to restore funding for Medi-Cal.

SB 1017, by Sen. Noreen Evans (D-Santa Rosa), has potential to generate about $2 billion per year for the state. Half the money would go to education, 25% would go to state parks and 25% -- about $500 million per year -- would go to the state Health and Human Services Agency. Evans said using the money to reduce or reverse the 10% cut to Medi-Cal reimbursements is "exactly the sort of thing we envision."

Both Long Shots

With California on the fiscal rebound, lawmakers might be ready to reinvest in the state's expanding Medicaid program, but the governor appears less inclined.

Democratic Gov. Jerry Brown, still basking in the glow of guiding the state's financial comeback and considering another run for office, has urged fiscal restraint and discouraged the idea of generating more revenue with new taxes.

The $400 million pricetag on the Assembly bill and the Senate bill's tough uphill battle against a well-heeled anti-tax lobby make both legislative efforts long shots.

Brown's proposed budget for the year introduced last month made no mention of restoring Medi-Cal funding.  

Skinner hopes the state's improving financial situation along with the federal dollars attached to Medicaid will sway the governor.

"The LAO (Legislative Analyst's Office) is once again forecasting the state's revenues will be above what the governor estimates," Skinner said, referring to a state LAO report released earlier this month. "The possibility exists that independent of new sources of revenue, it appears we may have the funds to reverse part if not all of the Med-Cal cuts.

Skinner said the federal funding associated with Medicaid makes state spending on Medi-Cal a more attractive option than some other budget expenses

"I would hope the governor would be open to spending in areas in which there is a possibility for federal contributions," Skinner said.

Oil Tax Revisited

Although Brown did not mention Medi-Cal spending in his budget proposal last month, he did make it clear he’s not in favor of taxing oil companies. 

"I don't think this is the year for new taxes," Brown said last month in response to renewed calls for taxing oil companies for their California extractions which help the industry make an estimated global profit of $331 million per day.

This is the third time Evans has proposed taxing companies for extracting oil in California. In 2009, the Legislature passed a 9.9% extraction tax. Gov. Arnold Schwarzenegger (R) vetoed it.

Evans, newly seated on the Senate Committee on Health, said part of her motivation for directing some of the proceeds toward health care stem from her less-than-comfortable memories of having to make deep cuts in health programs a few years ago.

"I was budget chair in 2009 for our joint budget committee, and I remember what it was like when we started making drastic cuts to health programs. It needed to be done and we did it, but it was very clear we were harming the most vulnerable Californians," Evans said.

"I hope this bill will allow us to start to restore some of those cuts. Reversing the 10% cut to Medi-Cal reimbursements is exactly the sort of thing we envision," Evans said.

Evans and her staffers expect to be working with state health officials to define where the money should go if her bill becomes law. An HHS spokesperson said state officials would not comment on pending legislation.

California -- which was already one of the lowest-reimbursing states in the federal Medicaid program before the across-the-board 10% reduction to hospitals, physicians and other providers -- is expanding Medi-Cal in conjunction with the Affordable Care Act. Health experts worry that even lower reimbursements will discourage physicians and other providers from taking on new Medi-Cal patients just when the system is trying to grow.

"I know that's an important issue and we plan to look closely at it," Evans said.

'David vs. Goliath' in the Oil Fields

California, the fourth-largest oil producing state in the U.S. is the only major producer that does not tax companies for extracting oil from the ground. Taxes in other states range from 25% in Alaska to 4.75% in Texas. Evans proposes a 9.5% tax on large companies in California. Small oil producers would be exempt.

"Not taxing oil extraction is simply fiscally unsound," Evans said.

Most of the new revenue would go to the University of California, California State University and California Community College systems. Evans hopes the prospect of reliable annual income for higher education will help her bill win public approval.

"What's different this year is that students are really mobilizing behind this," Evans said. "This is kind of a David and Goliath, and the students are David."

Oil companies, trade groups and anti-tax organizations are lining up to fight the bill. The California Chamber of Commerce and Californians Against Higher Taxes have already expressed their opposition.


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