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Shifting responsibility for public services from state to counties led to decreased health spending in California, finds new analysis

– In 1991, the California legislature shifted the responsibility of providing health, social and mental health services from the state to the counties in a landmark effort to resolve the state's fiscal crisis and to increase local control and delivery of services. As a result of this "realignment," however, per capita spending on public health has decreased, particularly in counties where there is a greater need for social services, according to a new analysis by researchers at the University of California, Berkeley.

After California's 1991 Realignment Bill was enacted, per capita health services expenditures fell in the state by about nine percent from an average of $190 to $174, according to the findings, which were released today (Monday, Dec. 8) in a policy brief by the Petris Center on Healthcare Markets and Consumer Welfare at UC 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, UC Berkeley 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 state legislators are considering significant cuts to state health programs for low-income residents. State cuts that are 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.

"This brief raises concerns about the impact of further cuts to public health programs for low-income residents in the state," 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 10 years following enactment of the realignment bill. Counties that were not included, such as San Francisco, did not have expenditure data available and were left out of the analysis.

The researchers found that 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, including a 19 percent decline from $74 to $60 in Orange County.

Although there were a few counties that saw increases in spending on health services, the researchers found that overall, there was a proportionally greater decline of health spending in areas where the demand for social services are greatest. According to a 2001 report by the state Legislative Analyst's Office (LAO), there was actually a net increase in funds allocated to social services after the realignment bill was passed. The LAO report notes that from 1993 to 1998, a total of $133.3 million was diverted from health and mental health services into social services.

The researchers said this reflects one of the most significant changes from the realignment bill: Counties were given the flexibility to transfer funds between health, mental health and social services. They said rules governing use of the funds favored money moving from health to social services. For instance, counties were allowed to shift up to 20 percent of funds from health services to pay for social services by the second year of realignment. It wasn't until three years after the bill was passed that counties were allowed to transfer funds in the other direction, diverting up to 10 percent of funds from social services to either health or mental health services.

"Counties were perhaps faced with a dilemma with regard to funding health and social services," said study co-author Richard Smith, assistant professor of economics at the University of South Florida St. Petersburg and a faculty affiliate at UC Berkeley's Petris Center. "They are mandated by state and federal law to fully fund certain social service programs, but no such mandate exists for health services. As caseloads increased for social services, counties with large indigent populations may have felt like they had no choice but to reduce access to health services in order to adequately fund mandated social service programs."

Merced County, with the highest proportion of residents in social service programs, saw a 43 percent drop in per capita health service spending after the realignment bill was passed, while Sacramento County, with the fourth highest proportion of residents in social service programs, saw a 20 percent drop, the researchers found.

"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 of 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."