California Budget Cuts Forfeit Billions in Federal Funding

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(Sacramento, CA)
Wednesday, August 5, 2009
It’s time for a little lesson in state health care financing. Let’s think of it in terms of something many people are familiar with -- a 401k plan. That’s the retirement fund option offered at many jobs. The employee puts money into a tax sheltered account and the employer chips in matching money.

“To not take advantage of that would be to leave free money on the table.” 
Sacramento financial advisor Ben Goldhammer says he usually tells his clients to plan ahead with a 401k. He thinks the state should manage its money just like the rest of us.  

“Had they planned things out better, had they asked a financial planner what they should have done, then they would’ve had extra money, they would’ve made different choices in the past.”
The state didn't plan ahead so now it's going to lose out on lots of money. That 401k “matching” principle also works for California’s health care programs for the poor. The federal government chips in money for each dollar the state contributes to the programs. Micah Weinberg is a health policy expert with the non-partisan New America Foundation. He says the funding model creates an incentive for the state to pay more for programs like children’s health insurance and for Medi-Cal.  

“I don’t think that people are aware of the federal match.”

Overall California’s Health and Human Services' state funding was cut by almost $4 billion. That’s a thirteen percent reduction from last year. But Weinberg says the public should know that’s not the end of it.

“I don’t think part of their calculation when they think about am I happy about what Governor Schwarzenegger did or not is ‘hey, some of these cuts are going to lose us two federal dollars for every cut we make.”"
One example of how all of this will play out is with California’s Children’s Health Insurance Program called Healthy Families. It took a $178 million state funding cut. But counting lost federal funding Healthy Families will lose about $550 million. As a result thousands of kids are on a waiting list to get coverage. And soon, some who are already on the program could be kicked off.

But H.D. Palmer with the California Department of Finance says these ugly cuts simply could not be avoided.

“One of the difficult consequences of having to close a $60 billion budget gap in just six short months is the fact that a number of federal dollars are going to have to be left on the table.”
All told Palmer says more than $2.5 billion federal dollars for Health and Human Services will be left on the proverbial table this year. But he says that number could swing wildly. That’s if the federal government agrees to a billion dollar Medi-Cal deal with the state. Palmer says that would involve the feds paying more money and allowing changes to some of the program's benefits to cut costs. Or another variable is if a private funder, most likely the First 5 Commission funded by state tobacco tax revenues, gives money to offset Healthy Families budget shortfall. But at this point there are no guarantees.