Editor’s note: In addition to Autumn Kieber-Emmons (photo and bio above), this post is coauthored by Tom Bodenheimer and Kevin Grumbach. Bodenheimer is Professor of Family and Community Medicine at University of California, San Francisco. Grumbach is Professor and Chair of the Department of Family and Community Medicine at UCSF and Chief of Family and Community Medicine at San Francisco General Hospital. Bodenheimer and Grumbach are two of the leading authorities on primary care and the health care workforce.

Another Health Affairs Blog post published today also discusses the California health care system and how the Affordable Care Act will affect the way the state meets the needs of low-income patients.

The Patient Protection and Affordable Care Act of 2010 calls for the mandatory expansion of Medicaid to all persons at or below 133 percent of the Federal Poverty Level starting in 2014. With the passage of this bill and follow-up legislation (ACA), state governments and the entire national healthcare infrastructure are beginning to prepare for the implementation of these reforms.  California, with the largest Medicaid program in the country and a massive budget deficit, serves to highlight the concerns and hopes for Medicaid expansion across the nation.

Currently, Medicaid, called Medi-Cal in California, serves 7.5 million Californians at a cost of $45 billion per year. Healthcare reform expansion will allow 3.6 million additional Californians to enroll in Medicaid. However, such an increase in coverage is not without a price, with estimates of up to $3-4 billion per year of additional state expenditures by 2020. The planned expansion comes in the face of a current $22 billion state budget deficit in California and cutbacks to the existing state Medicaid program.

To evaluate the California perspective on the ACA’s Medicaid expansion, we interviewed twenty-six key California health care stakeholders from across the health care arena, including Democrats and Republicans, state officials in both the legislative and executive branches, and leaders of organizations representing physicians, hospitals, and clinics. As discussed in more detail below, participants showed general support for the expansion of Medicaid, with concerns about the cost to implement expansion, hopes for increased use of managed care delivery system reform to produce cost-savings, worries about provider access and physician payment rates, and support for the recent California Section 1115 Medicaid Waiver, both as a “bridge to reform” that will begin to cover those Californians who will be eligible for Medicaid when the program expands in 2014, and as a way to bring the most expensive Medicaid recipients into managed care.

1. California policymakers and stakeholders agree that Medicaid expansion for low-income, childless adults is a ground-breaking step forward.

With few exceptions, individuals interviewed on both sides of the political aisle in California endorsed the Medicaid expansion of the ACA as a major step forward for coverage of low-income, childless adults. While Republicans in general were very concerned about the costs of health reform and not supportive overall of the ACA, no one, including Republican legislative staffers, indicated a desire to repeal the specific component of Medicaid expansion. Most legislative staffers and state employees agreed with the sentiment that it is “a wonderful opportunity for California,” allowing for coverage of a “population that everyone has struggled to address for decades.” One Republican legislative staffer remarked, “in general, it makes sense.”

2. General support for Medicaid expansion is tempered by anxiety about the financial burden to the state.

Under the ACA, the federal government will initially provide 100 percent of the costs of new enrollees, a share that incrementally decreases to 90 percent by 2020.  However, there was widespread agreement among California stakeholders that new enrollees will still incur additional costs to the state. Many interviewees believe that substantial indirect costs will be required to run a larger Medicaid system. Additionally, many anticipate increased real-dollar expenditures for new enrollees eligible for Medicaid under current policies, but who are falling through enrollment cracks that tighten with the new regulations; the federal match for these beneficiaries will be at the current California rate of approximately 50 percent.

As one state official remarked, Medicaid expansion under the ACA is “big, bold and expensive.” Recent analyses by both the state Medicaid program and the independent RAND corporation estimate that annual new costs to the state could approach $3-4 billion come 2020. Amidst an already heavy climate of budget cuts and deficit conversations at the California state level, the thought of possible billion-dollar expenditures above and beyond current Medicaid expenditures was a priority concern, with many asking “how will we pay for it?”

Whether the additional costs to California will approach the projections or will be a more modest sum is a point of controversy among stakeholders. Some interviewees believe that health delivery reforms and redesign can produce savings to offset the costs of the expansion; others think that such savings, if ever realized, will not occur until many years after the initial money is needed. Many discussed the necessity for “smart rationing” and managed care initiatives to keep costs down.

Ideas for payment sources to support expansion were numerous and varied, including general funds, fees, realignment monies from counties back to the state government, new taxes, and provider, hospital, or beneficiary contributions. As one interviewee summed it up, “the state will have to figure out where the money can come from…that will be someone’s problem.” One respondent suggested that a full-scale “cost-analysis” be undertaken by the state, to give policymakers and state officials a better idea of California’s likely Medicaid expansion costs.

3. California stakeholders count on building on California’s track record in Medicaid managed care to help control Medicaid expenditures.

For decades, HMOs and other managed care health plans have been a prominent feature of the California healthcare market. Since 1996, the state has required that all non-disabled, non-aged Medicaid beneficiaries in large urban counties enroll in a Medi-Cal managed care plan. California counties are integral to this process, with some of the largest counties supporting a county-operated quasi-public, non-profit health plan.  Forty-eight percent of Medi-Cal beneficiaries are currently enrolled in managed care, and policymakers have credited this strategy with lowering the rate of rise of Medicaid expenditures, in part by decreasing rates of hospitalization. However, the most expensive and medically complex populations, seniors and persons with disabilities (SPD), have remained in fee-for-service Medicaid.

The state’s recently renegotiated Medicaid Section 1115 Waiver makes substantial changes in Medicaid; beginning June 1, 2011, seniors and persons with disabilities must also enroll in Medi-Cal managed care plans. Most interviewees believe that Medicaid managed care will become even more important under the ACA coverage expansion, with hopes that the move towards managed care under the Section 1115 Waiver will prove that high-user, medically complex patients can be served well under such a model and produce cost-savings. As one state official summed it up, “managed care is here to stay.”  Legislative staffers remarked that the upcoming years will be an “opportunity to shine” noting that managed care plans are a “cost-effective solution…[that] do a good job with money.” As a Republican staffer remarked, managed care is ideally suited for health reform, with its emphasis on “medical homes, network requirements and physician referral requirements.”

However, stakeholders representing physicians and patients expressed concern about the ability of California managed care plans to provide high-quality care to indigent populations, who may have a vast array of medical, mental health, and social services needs, questioning whether “the plans are skilled at complementary services that the patients need.” Others noted that the regulatory interplay between Medicaid and the upcoming exchange, where individuals above 133 percent of the poverty level can purchase private insurance plans with government subsidies, will be an important step in determining exactly what role managed care will play at both the state and national level.

4. Concerns abound that new Medicaid beneficiaries will lack adequate access to medical providers, secondary to both a provider shortage as well as poor physician payment rates.

Access to providers is a key concern of California stakeholders across all healthcare arenas. An interviewee remarked “having a card that says you have coverage does not mean that you will have a physician,” and another, “having insurance isn’t healthcare, it’s just insurance.” Adequate provider networks and payment rates were highlighted as key factors creating access problems for new Medicaid enrollees.

Prior to the ACA, a national workforce shortage of between 35,000-44,000 primary care physicians was projected by 2025; California may face a state-wide shortage of 5,000-17,000 primary care providers by 2040. Furthermore, in 2008 only 57 percent of California physicians reported that they accept new Medicaid patients, compared with 90 percent of physicians accepting privately insured new patients. As a result, only one-quarter of California physicians provide the care for 80 percent of all California Medicaid beneficiaries.

With the addition of millions more enrollees into Medicaid, there is concern that this supply-demand mismatch will worsen. Furthermore, the Section 1115 Waiver has strict regulatory requirements and access standards, for instance a requirement that patients seeking primary care should wait fewer than 30 days for new patient appointments. (1115 Waiver – Low Income Health Program Presentation. Department of Public Health Meeting with Clinical Leadership. San Francisco. Presentation 2011 Jan 4.) Many interviewees noted the need for updated state-wide projections of workforce supply given the changing demand expected by the Medicaid expansion.

Many stakeholders also expressed concern that low Medicaid physician fees in California will not entice new providers to join the system. California Medicaid pays only 56 percent of Medicare rates, having the fourth lowest Medicaid physician payment rates in the country. Though the ACA mandates a two year increase in primary care physician rates to equal 100 percent of Medicare fees, interviewees were doubtful that this will do anything more than persuade current Medicaid providers to remain within the system. Many stakeholders, representing providers and care delivery systems, desire an analysis of how different rates could affect uptake and retention of providers within the Medicaid system.

Access to hospitals was also a source of worry for half of the stakeholders, with payment sources and utilization mix between public and private hospitals of concern. For the approximately 120 disproportionate-share hospitals (DSH) in California that care for a large proportion of Medicaid patients, funding will be cut through the ACA, under the assumption that with insurance coverage for all patients, hospitals will be able to make up lost uncompensated care revenues. Whether this new revenue will be able to make up for the DSH funding cuts is a question. Additionally, interviewees noted that public hospitals will now need to show that they are high-quality alternatives for care when compared to their private counterparts.

5. California’s Medicaid Section 1115 Waiver provides a timely “bridge to reform” and is essential for successful implementation of upcoming healthcare reform.

All interviewed felt that the state’s 2010 renewal of its Section 1115 Waiver from the Centers for Medicare and Medicaid Services is an integral “building block” for the state, allowing for the early expansion of coverage for low-income adults with the use of federal funds. This “bridge to reform” waiver has three key components that position the state to move forward with some of the preparatory work for ACA implementation.

First, through the waiver, individuals eligible for Medicaid expansion in 2014 are able to be enrolled starting this year into the county-administered Low Income Health Program, with federal monetary support to these existing county-operated programs. By providing for federal matching funds to county expenditures at a 50/50 match, the waiver becomes a feasible avenue for beginning the process of Medicaid expansion. Secondly, as noted above, the waiver expands on California’s already robust managed care climate, by mandatorily moving SPD beneficiaries in fee-for-service Medicaid into Medicaid managed care with the expectation of reducing costs. Thirdly, the waiver provides additional funding to assist California safety net hospitals and clinics to redesign their care delivery models to provide higher-quality care at a lower cost.

California stakeholders believe these components allow the waiver to serve as the “foundation” for national reform, allowing the state to “develop infrastructure,” “maximize enrollment” of eligible populations, and address “acute [medical] needs of the population … sooner.” The waiver serves as a model for other states contemplating similar projects to prepare for their Medicaid expansion.


With the recent passage of the Patient Protection and Affordable Care Act of 2010, the nation is beginning preparations for the massive expansion of Medicaid in 2014.  As discussed above, key California stakeholders show general support for the expansion of Medicaid, with concerns about the cost to implement expansion, hopes for amplified  use of managed care delivery system reform to produce cost-savings, worries about provider access and physician payment rates, and appreciation of the timely value of the state’s newly renegotiated Section 1115 Waiver “bridge to reform.”

In California, work is already underway with the Section 1115 Waiver, which is initiating enrollment of the most expensive Medicaid beneficiaries into managed care in the summer of 2011. As California and other states across the nation move steadily forward towards the start of ACA reform in 2014, policymakers, healthcare stakeholders, and the public must consider issues of cost, access, provider payment rates and delivery system reforms. State engagement in these issues will be critical for the successful implementation of Medicaid expansion and the other ambitious elements of national health reform.

Appendix: Study Methods And Participants

The authors received University of California IRB exempt approval to undertake qualitative interviews with key California healthcare stakeholders. Interviewees were approached by email for participation and sent information sheets and the interview question guide prior to participation in the study. In-person and telephone interviews were conducted by the first author. This author interviewed 26 key California informants including individuals from the Department of Health Care Services, the US Department of Health and Human Services, the California Health and Human Services Agency, the California State Senate, the California State Assembly, the California Governor’s office, the California Academy of Family Physicians, the California Association of Public Hospitals and Health Systems, the California Hospital Association, the California Primary Care Association, the California Medical Association, the Center on Budget and Policy, and four county government and community health center representatives. Common consensus themes and points of conflict were identified for each question category.

Participants included Scott Bain (California Senate Health Committee), Andrew Bindman (UCSF Institute for Health Policy Studies and Department of Medicine), Carmela Castellano-Garcia, Esq. (California Primary Care Association), Daniel Castilllo (Orange County), Timothy Conaghan (California Senate Republican Policy Office), Roger Dunstan (California Senate Health Committee), Kirk Feely (California Senate Republican Fiscal Office ), Richard Figueroa (California Endowment Fund/Governor Schwarzanegger), Lisa Folberg (California Medical Association), Dean Germano (Shasta Community Health Center), Katie Johnson (California Senate Appropriations Committee), Jennifer Kent/Brian Hansen (California Department of Healthcare Services/Medi-Cal), Andrea Margolis (California Assembly Budget Committee), David Maxwell-Jolly (California Health and Human Services), Anne McLeod (California Hospital Association), David Panush (California Health Advisor to Senate President), Edwin Park (Center on Budget and Policy Priorities), Joe Parra (California Senate Republican Policy Office), Thomas Riley (California Academy of Family Physicians), Gregg Sass (San Francisco County), Herb Schultz (Department of Health and Human Services, Region IX), Melissa Stafford Jones (California Association of Public Hospitals and Health Systems), Marjorie Swartz (California Assembly Health Committee), William Walker (Contra Costa County), Lucien Wulsin (Insure the Uninsured Project), Meredith Wurden, (California Legislative Analyst Office)