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Getting ugly in California

Posted by: Ella Hushagen on Jun 05, 2009

California, home to beautiful beaches and beautiful people, is facing an ugly battle over the state budget. The state is facing a $24 billion deficit, and Governor Schwarzenegger has proposed to fill it with massive cuts to crucial programs. The New York Times says that the cuts, if enacted,

would turn California into a place that in some ways would be unrecognizable in modern America: poor children would have no health insurance...

Schwarzenegger called for $2.2 billion in health care cuts that would be devastating to millions of Californians. According to Health Access California,

The Governor's proposals would result in over 2 million Californians, including 1.5 million children, losing health insurance coverage; reduced access to certain health care services for many more Californians; and the elimination or significant reduction of critical local health and prevention programs.

The Governor's plan would wipe out the State Children's Health Insurance Program (called Healthy Families in California), making California the first state to end the highly successful program for kids since its creation in 1997. He also wants the state to negotiate a federal Medicaid waiver that would allow it to make an additional $1 billion in cuts to Medi-Cal (Medicaid in California), a key safety net program for low-income kids, families, and elderly and disabled Californians.

These cuts aren't just bad for health care consumers who use the Medi-Cal and Healthy Families programs; they're bad for everyone in the state. The Medi-Cal cuts would disqualify California from receiving billions of economic stimulus dollars from the federal government as part of the American Reinvestment and Recovery Act (ARRA). Health Access points out that,

for every dollar we cut from Medi-Cal, we lose over $1.60 in federal funds, and over $2.60 into our health system and economy. Healthy Families provides an even more generous 2:1 match, meaning we lose $2 for every $1 we cut--$3 out of our health system. There's no tax or revenue source that would have anywhere close to the economic impact as cuts in these programs.

The loss in federal revenue would have a negative effect on the state's economy. According to Families USA's Medicaid calculator, if the state cuts $1.302 billion from Medicaid and SCHIP, California will lose approximately $3.282 billion in business activity, 25,836 jobs, and $1.172 billion in wages. Medicaid and CHIP spending inject federal dollars into state economies, which creates a ‘multiplier effect':

The new dollars pass from one person to another in successive rounds of spending, generating additional business activity, jobs, and wages that would not otherwise be produced. Economists call this the "multiplier effect." The converse of the multiplier effect is also true: A reduction in the amount of federal funding going to a state causes a corresponding reduction in business activity, jobs, and wages