Biden let California get creative with Medicaid spending. Trump is signaling that may end

Physician assistant Brett Feldman checks his patient, Carla Bolen’s, blood pressure while in her encampment at the Figueroa St. Viaduct above Highway 110 in Elysian Valley Park in Los Angeles on Nov. 18, 2022. Photo by Larry Valenzuela, CalMatters/CatchLight Local

By Kristen Hwang, CalMatters

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In 2022, California made sweeping changes to its Medi-Cal program that reimagined what health care could look like for some of the state’s poorest and sickest residents by covering services from housing to healthy food. But the future of that program, known as CalAIM, could be at risk under the Trump administration.

In recent weeks, federal officials have signaled that support for creative uses of Medi-Cal funding is waning, particularly uses that California has invested in such as rent assistance and medically tailored meals. Medi-Cal is California’s name for Medicaid.

The moves align with a narrower vision of Medicaid espoused by newly confirmed Centers for Medicare and Medicaid Services head Dr. Mehmet Oz, who said during his swearing-in ceremony that Medicaid spending was crowding out spending on education and other services in states with the federal government “paying most of the bill.”

“This one really bothers me. There are states who are using Medicaid — Medicaid dollars for people who are vulnerable — for services that are not medical,” Oz said.

It also fits with broader GOP calls to slim down the federal government. Medicaid is under scrutiny as part of a GOP-led budget process in the House of Representatives that calls for $880 billion in cuts over 10 years to programs including Medicaid.

“The messaging that we want to go back to the basics of Medicaid puts all of these waiver programs in jeopardy,” said John Baackes, former chief executive of L.A. Care, the state’s largest Medi-Cal health insurer.

CalAIM is authorized under a federal waiver that allows states to experiment with their Medicaid programs to try to save money and improve health outcomes. Under the waiver, California added extra benefits for high-cost users to help with food insecurity, housing instability,  substance use and behavioral health challenges.

Roughly half of all Medi-Cal spending can be attributed to 5% of high-cost users, according to state documents.

But in March, the federal government rescinded guidelines supporting Medi-Cal spending for social services. It also sent states a letter in April indicating that the Centers for Medicare and Medicaid Services would no longer approve a funding mechanism that helps support CalAIM, although that money will continue until 2026.

Together, these moves should worry states that operate programs like CalAIM, said Kathy Hempstead, senior policy officer at the Robert Wood Johnson Foundation.

“Under the Biden administration states were encouraged to experiment with things like that: To prescribe people prescriptions to get healthy food, to refer people to community-based services,” Hempstead said. “This administration is not receptive at all to … that vision of the Medicaid program.”

In a press release, CMS said it is putting an end to spending that isn’t “directly tied to health care services.”

“Mounting expenditures, such as covering housekeeping for individuals who are not eligible for Medicaid or high-speed internet for rural healthcare providers, distracts from the core mission of Medicaid, and in some instances, serves as an overly-creative financing mechanism to skirt state budget responsibilities,” the press release states.

These signals from the federal government apply to future applications for Medicaid changes, and do not change California’s current programs or funding. The state’s CalAIM waiver expires at the end of 2026, and another similar waiver that supports California’s efforts to improve behavioral health care expires in 2029.

According to a statement from the Department of Health Care Services, the agency that oversees Medi-Cal, all programs “remain federally approved and operational.”

“We appreciate our Medi-Cal providers and community partners, and together we will push full steam ahead to transform our health system and improve health outcomes,” the department said.

Paul Shafer, co-director of the Boston University Medicaid Policy Lab, said decades of public health research show that people have worse health outcomes that require more expensive treatment when their social needs aren’t met.

“We’ve spent the last few decades in public health and health policy, arguing that so much of health and medical costs is driven by environmental factors — people’s living conditions, income, etc.” Shafer said.

But, Shafer said, programs like CalAIM are relatively recent and the research hasn’t had enough time to show whether paying for non-traditional services saves money.

For example, California’s street medicine doctors who take care of people who are homeless say that their patients often cycle in and out of the emergency room — the most expensive point of service in the health care system. They have no place to recover from medical procedures, no address to deliver medications, and the constant exposure to the elements takes years off of their lives, doctors say.

CalAIM gives them options to help their clients find housing.

The federal government’s decision not to fund programs like this in the future is a “step backward,” Shafer said.

“I think we can all read the tea leaves and say that that means they’re sort of unlikely to be renewed,” he said.

Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a price they can afford. Visit www.chcf.org to learn more.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.