February 2015 Blog – In many states, behavioral health Medicaid carve outs are in jeopardy, but not in California. Why is that so?

ICCCMHA_63_logon many states, behavioral health Medicaid carve outs are in jeopardy, but not in California. Why is that so?

It is difficult to go to a health policy forum and not hear people talk about ending the behavioral health carveout in MediCal. Health plans, federally qualified health centers, health policy “experts” all seem to advocate for such an action and not surprisingly many in the mental health community fear that this will happen and worry about the state not seeking renewal of the Section 1915 (b) Freedom of Choice Waiver which has been in place since 1995 creating counties as the single managed care entity for mental health. That waiver is up for renewal in June of 2015. Many in the mental health community appear worried that the state will not seek its renewal or that the federal government will not approve it. They further worry that if that happened the so called carve out by which these services are provided through counties instead of managed care plans would come to an end.

However, those worries appear to be misplaced. Moreover, even if the waiver did not continue, the county system would not go away without a vote of the people to overturn two voter approved ballot measures.

If the freedom of choice waiver went away the county system would still exist under state law. That system is now constitutionally protected by Proposition 30 of 2012 which permanently dedicates a portion of state sales tax to counties for behavioral health services. That was done in order to allow counties to make cost effective strategic decisions across programs that they shared financial risk for such as child welfare and criminal justice- two systems that are overpopulated with people who are there because their behavioral health needs had not been met. As pointed out in the excellent paper by the Los Angeles community mental health agency association ACHSA there are strong state policy reasons for these being county programs (see national council blog). In addition Proposition 63 directs 95% of the Mental Health Service Act funds to counties based upon their demonstrated networks and success. Only a vote of the people could change either of those protections.

If the federal government did not approve the freedom of choice waiver the state would have to use other state funds to create a separate MediCal system. That system would offer a choice to MediCal enrollees of two behavioral health plans in each county and the cost to the state to do so would be significant.

In addition California’s county mental health system is a managed care system under state law. That provides an effective mechanism to control costs which is one of the federal government’s main concerns. The rich array of services that are tailored to the needs of diverse populations with severe mental illnesses and serious emotional disturbances further demonstrates its quality as explained in the Los Angeles paper referenced above.

So if all of this is true then why do we hear so many powerful leaders talking about the carve out ending?

The answer is integration. There is a valid belief that we need to integrate behavioral health with physical health. However, our work in California and also in Colorado with a similar complete behavioral health carve out demonstrate that integration may be more effectively achieved in horizontal integration with partnerships between separate managed care entities than through vertical integration of a single health plan.

Another Los Angeles County community mental health agency paper demonstrates how this can best be achieved. Click here

It is very significant that the new MediCal Section 1115 Waiver for the MediCal physical health system includes proposals to provide comprehensive bi-directional integration for all MediCal enrollees. This further demonstrates the ability to successfully integrate care with a financial carve out for behavioral health.

The model for the integration in the Section 1115 Waiver is the Coordinated Care Initiative (CCI) for so called dual eligibles- individuals enrolled in both MediCal and Medicare. That program which just started in the spring of 2014 in seven large counties requires bidirectional care coordination plans to ensure that when people are seen in primary care their behavioral health needs will be identified and care started. In addition a similar element addresses the physical health needs for those seen in county mental health programs. That model is now being extended to the rest of the MediCal system with financial incentives for health plans and potential shared savings for counties and its providers.

The state’s current intention is to seek a full five years for the next renewal and there is every reason to believe that it can be approved by the federal government (not necessarily for five years). To the extent that there might be federal concerns, it seems to be about the fee for service feature of the mental health system and not the carve out. The physical health managed care system receives its federal funds on a capitated basis. While county mental health departments receive state funds in a similar way, the federal payments to counties are on a fee for service basis. The federal government makes no secret of its desire to have that changed to a capitated formula to shift more financial risk to the counties. Counties recognize that this change will come eventually and are working to make sure that when it does that the rate is appropriate. It is likely that a few counties will pilot such an approach in the next few years.

The impending Section 1115 Waiver to create a managed care county run system for alcohol and drug services will make it more feasible for counties to eventually make such a change as integration within all of behavioral health is a critical element. That change and the need to shift to capitated federal funds seem to be the main things that the federal government wants to see changed in California and which will serve to strengthen the county behavioral health carve out.

So putting this all together, California has made strong commitments to county behavioral health systems. There is no evidence that the state has any intention of changing that nor is there any evidence that the federal government is going to challenge this structure any time in the near future.

Equally important is that there is also no evidence that any county is considering making such a change. It has always been possible for a county board of supervisors to turn over its mental health system to a private managed care company that would become a fiscal intermediary between the county and providers. A 1990s experiment with this in San Diego had poor results. There is always the risk that this will be proposed again but the more success that can be shown within the current structure in meeting needs of people with complex needs, cultural diversity and integration, the less likely a county board is to consider such a change.

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