Governor's Proposal. The Governor’s May Revision proposes reducing Proposition 99 funding for AIM by $5.3 million as compared to the January proposal. In addition to the proposed reduction, the May Revision also projects the following:
A carry-over balance in the Perinatal Insurance Fund from 2009-10 that was $4.7 million higher than expected. The Perinatal Insurance Fund receives transfers from Proposition 99 as well as the premium payments of 1.5% of adjusted annual household income from enrolled clients, and is used as the state match to draw down federal CHIP funds for insurance coverage of low-income pregnant women.
State expenditures from the Perinatal Insurance Fund in the budget year that are $1.9 million higher than projected in January.
AIM premium revenues that are $200,000 lower than expected.
This proposal would leave a negative balance of $25,000 in the Perinatal Insurance Fund, meaning if the caseload projections and cost projections were exactly accurate, the program would have to achieve savings of $25,000 in the budget year to remain within the proposed appropriation. Furthermore, this means that even with the proposed reduction, the May Revision level of funding is nearly adequate for the Perinatal Insurance Fund to fund the projected level of expenditures— albeit with no prudent reserve for uncertainties. A prudent reserve has generally been maintained in this fund in order to fund caseload levels slightly higher than those anticipated, as well as other cost adjustments that may occur throughout the year such as those resulting from AIM client plan selection. The proposed and projected revenue reductions and cost increases, which total $7.4 million, are offset somewhat by the $4.7 million unanticipated carry-over balance. The net result is a reduction in the fund of a projected $2.7 million reserve in January to the negative $25,000 reserve under the May proposal.
Analyst’s Comment. Although the May Revision proposes a significant reduction to the program, our analysis indicates that the program would likely be able to manage within the allocated budget without limiting new enrollment. Below, we describe two reasons why.
First, the MRMIB board has authority to make changes to the program based on the level of funding available to the program, including increasing the cost-sharing from 1.5 percent to 2.0 percent of income. Thus, it is not yet clear what the board may decide to do in order to manage cost and caseload in the program if funding is inadequate, but it is likely that modest increases in cost-sharing would be considered as a first option. We have requested that MRMIB provide an estimate of the savings related to increasing cost-sharing from 1.5 percent to 2.0 percent of income, but have not received a response at this time.
Secondly, we believe that, based on current caseload trends, it is likely that funding will be adequate to enroll all eligible women without implementing any policy changes. Although a small negative reserve is projected in the Perinatal Insurance Fund at this time, caseload has been on a downward trend for the last several months. Current caseload estimates project modest caseload growth, but it is possible that caseload will continue to drop even further. If this occurs, the program will likely have adequate funding to enroll all eligible women based on the proposed May Revision level of funding without resorting to policy changes.
Analyst’s Recommendation. Based on what we consider a reasonable likelihood that the proposed May Revision level of funding will be adequate to fund all eligible caseload, we recommend adopting the May Revision proposal for the AIM program. If the Legislature wishes to increase the likelihood that the program is able to accept all eligible enrollees and that no policy changes will be necessary, it would require augmenting funding from the level proposed in the May Revision in order to ensure a prudent reserve.