THE CONFLICT: HEALTHCARE CUTS (6/2002)
The State of California faces a budget deficit of over $23.6 billion. Governor Davis wants to cut California’s health and human services programs by $2.6 billion, for 35 percent of the $7.6 billion in cuts, even though these same programs represent only 27 percent of the overall budget. Should Medi-Cal, the state’s health insurance program for low-income residents, receive the brunt of these reductions?
In the next fiscal year, the state of California plans to spend more than $97.9 billion, making ours the largest state budget in the nation. While this sum may seem extraordinarily large, California’s gross domestic production (GDP) was $1.3 trillion in 2000. In fact, California’s economic power ranks it as the 5th largest in the world (PDF), surpassing such industrialized nations as Italy and Canada.
Unlike other states in the union like Florida or Nevada, the government of California is funded in large part by income taxes rather than general sales and use taxes. Thus, in 2001, as the nation plunged headlong into a dramatic recession and a heavy bear market drove stock prices down, California state revenues also diminished greatly.
For example, the tax on wealth derived from investments, also known as the Capital Gains Tax, netted the state over $17.7 billion in 2000. Just two years later, the California Department of Finance estimates it will receive only $9.7 billion in revenue from taxes on this personal income. According to the Governor’s budget proposal, this drop in stock market-related revenues following the bursting of the “dot com bubble”, along with the aftermath of September 11, has produced the fastest drop in state revenues since World War II.
These reductions in tax revenues have created a budget deficit of over $23.6 billion (PDF). By comparison, the California budget deficit is larger than the combined state budgets of New Mexico, Colorado, Arizona anad Utah. In order to keep the state of California “open for business,” the Governor has proposed a series of measures, from billions in loans to billions in budget cuts, in the hopes that he can steer the state away from a financial crisis of unprecedented proportions — while securing his re-election.
Of the state services targeted for spending reductions by the Governor, California’s health and human services programs will account for 35 percent or $2.6 billion of the $7.6 billion in cuts, even though these same programs represent only 27 percent of the overall budget. Medi-Cal, the state’s health insurance program for low-income residents will receive the brunt of these reductions.
The Governor’s cutbacks would require the following changes to Medi-Cal: excluding working families whose income is 67 percent of the federal poverty level, sidelining the Healthy Families Program to low-income parents, eliminating selected optional benefits like dental, chiropractic, podiatry, occupational therapy, psychological, and rehabilitation services, and certain medical supplies, as well as lowering the payment rates for physicians, dentists and other care providers who serve Medi-Cal enrollees.
The California Senate Budget and Fiscal Review Committee and the Assembly Budget Committee are currently negotiating both the Governor’s proposal and counter proposals from members of both houses of the state legislature. They must submit their revisions to the legislature by June 15. The state constitution requires that the legislature ratify the final budget by June 30th. A recent appeals court ruling aimed at expediting this process will force State Controller Kathleen Connell to slash the salaries of all state workers to the minimum wage if a final budget is not in place by the constitutional deadline. The Controller is appealing the judgment.
Governor Gray Davis, (D), is struggling to balance the state budget while preserving his chances for a re-election bid. His plan to make up the $23.6 billion deficit includes increasing the motor vehicle license fee and a cigarette tax, borrowing from the tobacco settlement, and making substantial cuts to healthcare programs.
B. Timothy Gage, the Director of the California Department of Finance and Governor Davis’ chief fiscal advisor, sides with economists who expect the economy to recover by the end of the year, resulting in an increase in state revenues. He supports the Governor’s decision to not introduce new taxes in order to ameliorate the budget deficit.
Senator Steve Peace, (D) represents south San Diego County from El Cajon to San Ysidro and is the Chairman of the Senate Budget and Fiscal Review Committee. Peace is adamant about meeting his committee’s June 15 deadline. He is similarly steadfast about avoiding any mention of a tax increase.
Senator Dick Ackerman, (R), represents Orange County and is Vice-Chair of the Senate Budget and Fiscal Review Committee. Ackerman insists that the current budget deficit has more to do with the Democratic governor’s spending policies than the economic windfall of last year’s recession or the terrorist attacks of September 11. The senator is a candidate for the Attorney General’s office.
The California Health Care Foundation along with groups like the California Budget Project, the California Medical Association and the Medical Policy Institute are warning that any reductions in state funding of Medi-Cal healthcare programs would have devastating effects on the state’s elderly, disabled and low-income citizens. They also argue that the ripple effects of such cuts would ultimately impact all Californians, regardless of income, as the state’s already strained medical infrastructure accommodates the decrease in funding to its busiest emergency rooms.
Those in favor might say:
The proposed cuts to the state’s Medi-Cal budget still leave Californians with one of the more accessible and comprehensive healthcare plans in any state. The growth in state revenue of the late 1990s is not likely to reoccur anytime soon. This unfortunate but unavoidable fact requires us to reconsider the generosity with which we fund already expansive social programs. Furthermore, if welfare reform is a serious goal, is it unreasonable to ask Medi-Cal recipients to pay a mere $3 per hospital visit or $5 for their use of emergency rooms?
Those against might say:
Without access to Medi-Cal, thousands of families already living on the edge of poverty will lose one of their most important safeguards: health insurance. Thousands of current Medi-Cal recipients will most likely be removed from the program solely because of a technicality: the quarterly versus annual filing of a report. Reducing payments to physicians, at a time when so many are leaving poor and rural communitites due to the state’s rock-bottom compensation rates will imperil the health of hundreds of thousands of Californians.
Excerpts from state budget: Other reductions: $77.6 million (General Fund), and $77.6 million (federal funds) to reduce Medi-Cal provider rates. $55.2 million (General Fund) to be replaced with Disproportionate Share Hospital funds through an increase in the State Administrative fee. $30.6 million (General Fund) and $30.6 million (federal funds) to offset reduced Medi-Cal provider reimbursements by increasing beneficiary co-payments. $6.7 million (General Fund), $3.5 million (Special Fund), and $63.3 million (Tobacco Settlement Fund) to eliminate funding for the Child Health and Disability Prevention program and transfer the caseload to the Medi-Cal and Healthy Families Programs…