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California's Health Care System May Change Under the Deficit Reduction Act

At CPAT’s November 2006 luncheons, attendees learned of important issues surrounding the federal Deficit Reduction Act of 2005 (DRA), signed by President Bush earlier this year. The Act is expected to generate $99 billion in federal entitlement reductions over the next nine years by reducing budgets for various programs and reconfiguring their current structure, including Medicaid (or Medi-Cal as it is known in California).

Because of these reductions, the DRA could have dramatic implications for California’s public health care system. This legislation mandates that each state craft its own regulations governing a variety of treatment options currently provided by Medicaid/Medi-Cal. While states have a wide degree of latitude to determine coverage guidelines, the possibility remains that current beneficiaries at or slightly above the federal poverty level could lose certain benefits or be required to increase their co-payments.

The Congressional Budget Office (CBO) analyzed the DRA and concluded that approximately:

  • 13 million people—20 percent of Medicaid enrollees—would face higher co-payments for non-preferred prescription drugs
  • One-third of those affected would be children and almost half would be individuals with income below the poverty level
  • 80 percent of the savings from higher cost sharing would be due to decreased use of services (or, in the case of prescription drugs, to the use of lower-cost drugs); the remaining 20 percent would reflect lower payments to providers
  • Many states would likely allow providers to deny services for lack of payment

The DRA reduces both federal and state Medicaid spending and changes healthcare access and coverage for low-income beneficiaries. For the first time, children could be subject to cost sharing under Medicaid, many adults could face a more limited set of Medicaid benefits, and the elderly could face delays in Medicaid coverage for nursing home services.

The extent of the DRA’s impact on California beneficiaries depends on how the state chooses to structure eligibility for Medi-Cal services. Medicaid began in 1965 through the Social Securities Act, signed by President Johnson. Since then, each state has had to manage the pros and cons of providing health care through combined state and federal dollars. Some of the benefits include states being able to expand coverage to low-income populations and children and disabled individuals. In addition, more than half of these costs were paid for through federal dollars. However, because these programs were funded through federal money, states did not have as much leeway with the way they could provide health coverage in their state. Now under the DRA, additional funding for Medi-Cal and the decision-making process will rely on California’s state leadership.

To learn more about the Deficit Reduction Act, visit the CPAT Web site at www.caaccess.org to view a copy of the DRA presentation from the November event. Additional information is also available through the following sources:


1. Henry J. Kaiser Family Foundation. Kaiser Foundation Commission on Medicaid and the Uninsured “Deficit Reduction Act Of 2005: Implications For Medicaid.” February 2006.

2. National Center for Children in Poverty “The Deficit Reduction Act of 2005, Opportunities and Challenges for ECCS Initiatives.” 2006.

3. Congressional Budget Office: Deficit Reduction Act Cost Estimate, S. 1932. January 27, 2006.


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