PPIC Logo Independent, objective, nonpartisan research
Press Release · June 16, 2005

Can Medi-Cal Costs Be Controlled?

Difficult Because Small Group of Enrollees Drives Bulk of Costs

SAN FRANCISCO, California, June 16, 2005 — Over the next ten years, state Medi-Cal costs are projected to grow at a faster annual rate than state revenues, according to a study released today by the Public Policy Institute of California (PPIC). The analysis also reveals that most Medi-Cal spending is concentrated among a small number of recipients. This means policymakers face the challenge of containing the costs of these very expensive cases – which are dominated by elderly and disabled enrollees who require nursing home or hospital stays.

In 2003, 5 percent of fee-for-service Medi-Cal enrollees incurred more than 60 percent of all costs. Even if expenses were cut in half for the 75 percent of enrollees who cost the least, the total savings would be less than 3 percent. For substantial savings, the analysis finds that the state would have to lower the cost of long-term care for the elderly, services for the disabled, and hospital stays for the seriously ill.

The study finds that rapid inflation in health care costs – not increases in the number of enrollees – is the driving force behind mounting expenses. Today, the state spends $12 billion annually on Medi-Cal from its general fund, and these expenditures are expected to reach nearly $29 billion annually by 2015 – a growth rate of 8.5 percent per year. California’s annual revenue growth is projected by the Legislative Analyst’s Office to be about 6 percent through 2010. “The budget disparity is notable. There are really only three strategies to address it,” says PPIC research fellow Hans Johnson, who co-authored the study with SPHERE researchers Thomas MaCurdy, Raymond Chan, Rodney Chun, and Margaret O’Brien-Strain. “The state can raise taxes, cut Medi-Cal spending, or take money from other programs and move it into Medi-Cal. None of these are easy.”

And things could get worse. “If the federal government reduces funding for Medicaid, the pull from state funds will be even greater,” says O’Brien-Strain.

The study, Medi-Cal Expenditures: Historical Growth and Long-Term Forecasts, was conducted in response to a request by California Secretary of Health and Human Services, Kimberly Belshé. The researchers received input from state legislative staff, Department of Health Services staff, the Legislative Analyst’s Office, and the Department of Finance.

The Public Policy Institute of California is a private, nonprofit organization dedicated to improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.