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Health spending in California decreased when control shifted from state to counties, study finds

| 28 January 2004

In 1991, the California legislature shifted the responsibility of providing health, social, and mental-health services from the state to the counties. It was a landmark effort to both resolve the state’s fiscal crisis and increase local control and delivery of services. As a result of this “realignment,” however, per-capita spending on public health has decreased overall, particularly in counties where there is a greater — and competing — need for social services, according to an analysis by Berkeley researchers.

After California’s 1991 Realignment Bill was enacted, per-capita health-services expenditures fell in the state by about nine percent over the next decade, from an average of $190 to $174, according to the findings, which were included in a policy brief issued by the Petris Center on Healthcare Markets and Consumer Welfare at Berkeley’s School of Public Health.

“The study is important because it is the first rigorous analysis of the impact of decentralizing control and spending on health services in California,” said Richard Scheffler, professor of health economics and public policy, director of the Petris Center, and co-author of the study. “California’s experiences should serve as an important example for other states and for the federal government as they move to decentralize responsibility for providing services to the public.”

The policy brief comes at a time when California legislators are considering significant cuts to state health programs for low-income residents. Cuts now on the table could reduce health-service spending over the next two years by as much as $720 million, including $600 million in cuts to Medi-Cal reimbursements.

Said Scheffler: “Per capita spending on health services has already been reduced, and counties are being stretched in their efforts to provide public services for their residents. Large cuts in state health programs will significantly increase the financial pressure on counties because they would leave low-income residents even more dependent upon county programs.”

The researchers analyzed annual expenditures from 25 counties, representing about 85 to 90 percent of the state population, from 1986 to 2000, inclusive. The 15-year period covers the five years prior to and the first ten years following enactment of the realignment bill. Counties (including San Francisco) that did not have expenditure data available were left out of the analysis.

Although there were a few counties that saw increases in spending on health services, that was not the overall trend. In San Diego County, the average per capita spending for health services declined by nine percent, from an average of $86 before 1991 to $78 after 1991. Several large counties throughout the state also saw declines in per capita health spending after 1991.

The researchers found a proportionally greater reduction in health spending in areas where the demand for social services are greatest, corresponding with a net increase in funds allocated to social services after the realignment bill was passed. From 1993 to 1998, a total of $133.3 million was diverted from health and mental health services into social services, according to a 2001 report by the state Legislative Analyst’s Office.

The researchers said this reflects one of the most significant changes stemming from the realignment bill: Counties were given the flexibility to transfer funds between health, mental health, and social services, though rules governing use of the funds favored fund-shifting from health to social services. Counties were allowed to shift up to 20 percent of available funds from health services to pay for social services by the second year of realignment — but were not allowed to reverse the flow until three years after the bill was passed. Even then, such diversion was limited to just 10 percent of available funding.

“We don’t know how the net decreases in per capita spending on health services have affected health outcomes, but any time you take money away from health-care services you exacerbate the stress on an already overburdened health care system,” said Smith. “Accessing health services may have become more difficult in counties where the social service needs are highest, and that is troubling. The people who are affected most by these changes tend to be the most vulnerable in the state.”

See www.petris.org/Briefs/Policy_Brief_4.htm for the full text of the policy brief.