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California is grappling with a fiscal crisis again, and this time the goose that laid the golden egg has flown. In other words, the millions in stimulus funds that helped prop up the state’s lagging coffers are drying up, further darkening an already dismal budget picture.
Complicating matters, the federal health reform law appears to add a significant budget obligation in coming years, according to a report released last week by the Legislative Analyst’s Office. The health reform law is under extreme pressure throughout the U.S., including in California, though support remains stalwart in many corners of the Golden State.
The health reform law plays little role in the immediate problems that legislative analyst Mac Taylor laid out last week. He described a $25.4 billion deficit that state leaders have since agreed to tackle in a special session.
But the tapering stimulus funding does play a large role. A report by Taylor’s office says that by the end of the next budget cycle, “about $4.5 billion of federal stimulus funding used to reduce general fund expenses will be exhausted.”
The state appears to be falling off a pretty steep funding cliff when it comes to Medi-Cal, the health insurer for the state’s needy and disabled.
Stimulus funds bumped those “matching” funds from the federal government from 50 percent to 62 percent, an amount that will go back down next year.
But that extra money came with strings: To get it, California had to open the doors to people previously considered too well-off to qualify for the program. Those doors will likely remain open, though, as a result of provisions of the health reform law.
That means the state will be spending more and more on Medi-Cal.
By the fiscal year ending in 2010, the projected increase in general fund spending is a whopping 40 percent from $12.6 billion to $17.6 billion. That number is expected to balloon to $24 billion by 2016, according to the report.
The report notes that expanded eligibility requirements under the health reform law are not the only cost drivers. Overall growth in healthcare costs contribute to this estimate, as well as economic conditions that may drive more people into the program for low-income Californians.
All said, though, the LAO report notes that there is ample uncertainty as to exactly how health reform will take shape and fit in the budget.
The health reform law is expected to generate millions in savings. Whether those savings offset the new costs remains a hotly debated question.
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