Health Care Costs and Financing

Transfer of health care funding from California State to counties maintained commitment to social service spending for the indigent

In the past decade, control of health and social programs for the poor has shifted from the Federal to State governments. In 1991, California further decentralized control of health, mental health, and social services from the State to the counties. This realignment gave the State's counties inordinate financial flexibility by effectively reducing their matching-fund rate for indigent health services by more than half.

County-level governments appeared to maintain a level of commitment to social service spending that recent studies indicate may be lacking at the State level, concluded Richard Scheffler, Ph.D., of the University of California, Berkeley, and Richard B. Smith, Ph.D., of the University of South Florida. Counties in the postrealignment period did divert about two-thirds of targeted health revenues away from their intended purpose.

However, the diverted funds went into other services (mainly mental health) that were part of the package of realigned programs benefitting low-income and medically indigent populations. Therefore, despite having greater authority and financial flexibility following realignment, counties tended to demonstrate the same level of commitment and support for providing these services that existed prior to decentralization.

One explanation is that several mental health programs became eligible for Medi-Cal (the State Medicaid program) funding in the years following realignment. Counties in California (as opposed to the State) have taken full advantage of matching Federal Medicaid dollars in expanding health and mental health services for the poor and uninsured.

State-level government lacks the redistributive power and policy focus of the Federal level, while also lacking the same proximity and commitment to local populations of county and lower levels of government, explain the researchers. Their conclusions were based on a review of the economics literature on intergovernmental transfers and data constructed for this study, supported in part by the Agency for Healthcare Research and Quality (HS00086).

See "The impact of government decentralization on county health spending of the uninsured in California," by Drs. Scheffler and Smith, in the September 2006 International Journal of Health Care Finance and Economics 6, pp. 237-258.

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