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The purpose of this paper is to discuss possible reform strategies for a comprehensive waiver for California against the backdrop of federal reform priorities. Although the Obama Administration and Congress are continuing to work on reform legislation, already there are indications of where the federal government may be heading in terms of future public policy around publicly-funded health programs.

The paper discusses several different reform approaches, pieces of which the state can select to create a comprehensive approach.  Those approaches are organized in terms of building the budget neutrality case that is needed in order to have an approvable Section 1115 waiver.

A significant infusion of federal dollars will be necessary to implement many of the reforms outlined in this paper.  In order to provide a “budget neutral” framework for this investment, California must identify federal savings. Given the extremely low baseline that is the hallmark of California’s Medicaid program, some creativity on the parts of both the state and federal governments will be in order.  With California’s low per enrollee expenditures and relatively low disproportionate share hospital allotment, it is highly unlikely that sufficient federal funds can be obtained through changes in the program to pay for the cost of covering and caring for childless adults in California.   Thus to be fully successful in covering more people, the waiver will require that the federal government give California credit for savings already achieved and provide the state with relatively generous trend rates.   

As is illustrated in this paper, California can make an argument that it is reasonable to allow the state to “capture” savings from initiatives –like managed care and fraud and abuse-- that other states implemented through waivers. Treating California as if it had taken the same course as other states would go a long way toward putting the state on equal footing in terms of the capability to finance a significant eligibility expansion. These arguments would be combined with some ideas on financing reform and flexibility that, when taken together, would help in generating savings for the budget neutrality calculation.

Of course, it is not unreasonable to expect the federal government to resist granting such flexibility to California without the state committing to a number of health system reforms, possibly including the following:

Service Delivery Reforms to improve access to the right care in the right setting such as  population-based collaborative networks, medical homes,  and better care management for individuals eligible for both Medicare and Medicaid (dual eligibles);

Quality Improvement Reforms such as improving care and reducing costs for both Medi-Cal and non-Medi-Cal beneficiaries, and reducing medical errors, never events, and readmissions; and

Health Management Associates/Harbage ConsultingPage 4

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