LAO estimates Medi-Cal spending will increase 14.2% in FY 2021-22

The Legislative Analyst’s Office (LAO) estimates Medi-Cal general fund spending will increase 14.2%  in fiscal year 2021-22, resulting in a $25.9 billion general fund price tag. LAO released these latest projections on Wednesday as part of its 2021-22 Fiscal Outlook.


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LAO’s fiscal outlook assumes California’s economic conditions will gradually improve over the coming years and that public health will improve with the release of a COVID vaccine in early 2021. The outlook also assumes there will be no changes to the Affordable Care Act or to federal Medicaid financing regulations such as those previously proposed under the Medicaid Fiscal Accountability Regulation (MFAR) rule.

In the near-term, LAO estimates California will spend $22.7 billion in general funds on Medi-Cal in 2020-21. This represents a $920 million (4%) reduction in what was assumed in the 2020-21 Budget Act. This reduction is primarily due to a lower-than-expected Medi-Cal caseload growth stemming from the COVID pandemic.

The following year, LAO’s latest estimates indicate general funding spending on Medi-Cal will increase by about $3.2 billion – jumping from $22.7 billion in 2020-21 to $25.9 billion in 2021-22.

The analyst’s office attributes the rise in cost to multiple factors including a growth in Medi-Cal enrollment, higher costs related to COVID-19, general medical inflation, and the assumed expiration of enhanced federal funding.


Image: Legislative Analyst’s Office


LAO predicts Medi-Cal enrollment will jump from 13.8 million to 14.9 million between 2020-21 and 2021-22. This additional 1.1 million beneficiaries, representing an 8 percent caseload growth, is expected to add $1.2 billion in general fund costs to the program.

The outlook also anticipates costs and savings related to COVID-19 will impact per-enrollee costs. For example, a decline in routine medical care utilization during the pandemic will result in an estimated general fund savings of about $110 million in 2020-21 relative to budget act assumptions.

On the other hand, vaccinating Medi-Cal enrollees against COVID will increase per-enrollee costs.

“We assume that a COVID-19 vaccine will become available to Medi-Cal beneficiaries in early 2021 and that millions of Medi-Cal beneficiaries will receive vaccinations through 2021-22 and beyond. General Fund is assumed to be needed both to pay for the vaccine itself and to pay health care professionals for administering the vaccine,” reads the report.

The outlook states that vaccination costs are expected to be minimal in 2020-21, but peak in 2021-22 at about $140 million in general funds.

General fund spending will also increase depending on when the enhanced federal funding enacted during the pandemic will expire. If it expires in December 2021, which LAO assumes will take place, general fund costs will increase by $800 million between 2020-21 and 2021-22.

The fiscal outlook also includes long-term projections through 2024-25. After peaking in 2021-22, LAO anticipates Medi-Cal caseload will decline by 5% annually to 12.6 million enrollees in 2024-25.

Long-term projections indicate a $8.6 billion general fund cost growth between 2020-21 and 2024-25 – representing an accelerated growth in costs. Pre-COVID, average annual general fund cost growth for Medi-Cal was about $800 million. Post-COVID, LAO estimates annual average cost growth will be about $2 billion.


Image: Legislative Analyst’s Office


Full details on Medi-Cal’s fiscal outlook are available here.