HHS26 Maximize Federal Funding by Shifting Medi-Cal Costs to Medicare


The Medi-Cal program pays for health care for low-income individuals. The Medicare program pays for health care for the elderly and disabled. The federal government pays for a portion of both programs, but pays a larger portion of the costs of health care for people enrolled in both programs. An outreach program should be implemented to more aggressively encourage Medi-Cal beneficiaries to enroll in the Medicare program.


The Medicaid program (called Medi-Cal in California) is a joint federal and state program that pays for health care for low-income people. The federal and state governments each pay about 50 percent of the program costs. The Department of Health Services (DHS) administers the Medi-Cal program. Under state and federal law, Medi-Cal is the "payor of last resort" when a beneficiary has third-party health coverage or insurance.[1] That is, Medi-Cal is only required to pay for the costs that remain after all other insurance carriers have been billed.

Medicare is a federal program providing health insurance to qualified aged, blind and disabled individuals. Medicare eligibility is restricted to those individuals or their family members who have paid taxes into the social security system. Medi-Cal beneficiaries who also are eligible for Medicare are called dual eligibles. Because Medi-Cal is the payor of last resort, Medicare pays for most of the costs of the health care provided to beneficiaries with dual eligibility.

The Social Security Administration (SSA) Retirement, Survivors, and Disability Insurance program, also known as Title II, provides benefits to disabled people, where the individual (or family members) has paid taxes into the social security system.

Benefits of enrolling more Medi-Cal beneficiaries in Medicare

As discussed above, state and federal law require Medicare to pay for health care services provided to beneficiaries with dual eligibility before Medi-Cal is required to pay. Medicare currently pays for about 65 percent of the health care costs for dual eligibles. In January 2006, when Medicare begins paying for prescription drugs, the federal share of health care costs for dual eligibles will increase slightly each year until it reaches approximately 72 percent in 2015. By Fiscal Year 2008-2009, the federal share will be almost 67 percent. Thus, by enrolling a Medi-Cal beneficiary into Medicare, an estimated 15 to 17 percent of the health care costs will be shifted from the state to the federal government.[2]

Medi-Cal beneficiaries who could be eligible for Medicare

Most Medi-Cal beneficiaries who reach age 65 or those who have been receiving Title II SSA disability benefits for a period of time (depending upon their medical condition) will automatically be eligible for Medicare. Other Medi-Cal beneficiaries under age 65 can get Medicare or SSA Title II disability benefits, if they meet certain criteria. These beneficiaries must have a chronic, permanent disabling disease, be in the country legally, and have paid social security taxes for a certain length of time.[3]

For example, Medi-Cal beneficiaries diagnosed with End Stage Renal Disease (kidney disease) can qualify immediately for Medicare after the third month of dialysis treatment. Beneficiaries diagnosed with Amyotrophic Lateral Sclerosis (ALS) can qualify for Medicare as soon as they are found eligible for SSA Title II disability benefits.[4]

Medi-Cal beneficiaries diagnosed with other chronic diseases, such as Muscular Dystrophy or Multiple Sclerosis (MS), can qualify for Medicare after receiving SSA Title II disability benefits for two years. Individuals can qualify for up to 12 months of retroactive benefits, so some Medi-Cal beneficiaries potentially could become eligible for Medicare within one year of approval for SSA Title II disability benefits.[5]

Medi-Cal beneficiaries with chronic disabling diseases typically have extremely high health care costs. For example, beneficiaries with End Stage Renal Disease require dialysis treatment, or may require organ transplants, which are very costly. Providing services to beneficiaries with ALS is also a very costly because the only federally approved drug, Rilutek, costs about $700 a month. Adaptive equipment can be expensive as well. A power wheelchair with tilt and recline features can cost as much as $17,000. A home health aid for 10 hours a day can cost more than $30,000 a year.[6] The table below shows average costs for a number of chronic, permanent disabling diseases.

Diagnosis Number of Medi-Cal beneficiaries not covered by Medicare Average monthly cost of health care
End Stage Renal 6,966 $2,105
ALS 21 $1,168
Muscular Dystrophy 2,006 $978
Multiple Sclerosis 2,342 $688

Source: June 2004 EDS study of Medi-Cal clients diagnosed with ALS, Muscular Dystrophy or MS who are not currently covered by Medicare.

Many Medi-Cal beneficiaries who could qualify for SSA Title II disability or the Medicare program fail to apply for these programs.[7] They often do not know about these programs or are reluctant to enter into a complex application process. Many of them are not aware that Medicare reimbursement rates are higher and, therefore, would allow them to see a greater variety of service providers.[8]

The Medi-Cal Reform workgroup findings included a statement that almost 50 percent of those clients who qualify for Medi-Cal on the basis of disability also qualify for Medicare.[9] In another study, the Lewin Group found that between 20 and 40 percent of Medicaid clients with chronic diseases would become Medicare eligible, if they were to apply.[10]

Current program for encouraging Medicare enrollment

The DHS has a competitively-bid contract with Electronic Data Systems (EDS) to process Medi-Cal claims. Each month EDS sends DHS a file of beneficiaries who have received renal services and are not enrolled in Medicare. These beneficiaries are sent a notice explaining that they may be eligible for Medicare. While this is a good start, the program is limited to only one chronic disease and there is no follow up to ensure beneficiaries enroll in Medicare. The DHS conducted one follow-up study and found that about four percent of the beneficiaries who were contacted had become eligible for Medicare.

Public-private partnership proposal

The contract between DHS and EDS allows EDS to propose opportunities for cost savings and receive a share of those savings. EDS has proposed to take the lead in managing a public private partnership to enroll more Medi-Cal beneficiaries with dual eligibility in Medicare.

The public-private partnership program would be focused on aggressive outreach and follow up and would include the following elements:

  • Contacting all beneficiaries who did not call a toll-free assistance phone number within 30 days of receipt of a notice informing the beneficiary of potential Medicare eligibility.
  • Offering to fill out the Medicare application for beneficiaries with information obtained over the telephone.
  • Offering to send field representatives to meet with beneficiaries.
  • Sending staff to dialysis centers to work with beneficiaries and the nurses assigned to these beneficiaries, since there is a concentration of potential Medicare eligibles at these locations.
  • Mailing letters to providers informing them of the benefits of having patients transition to Medicare so providers would encourage their patients to apply.

The DHS is authorized to perform work history data matches with SSA to identify the number of qualifying quarters for a Medi-Cal beneficiary or spouse. The DHS could request work history data matches for the beneficiaries identified by EDS as potential Medicare eligibles. The DHS could then forward that information to EDS to allow them to focus enrollment efforts on those beneficiaries who have the highest probability of becoming Medicare eligible.

Comparison with other states

Other states are beginning to adopt similar strategies to the one suggested above. For example, Washington has implemented a pilot program using state staff to enroll beneficiaries with renal failure and severe developmental disabilities into the Medicare program. Savings estimates are not available at this time but the program seems to be a very promising first step.[11]


  1. The Department of Health Services, or its successor, should authorize EDS to develop an outreach program to enroll Medi-Cal beneficiaries with a diagnosis of End Stage Renal Disease or ALS into the Medicare program and beneficiaries with Muscular Dystrophy or MS into the SSA Title II disability program. This should be authorized by September 2004.
  2. The Department of Health Services, or its successor, should discontinue the current program notifying Medi-Cal beneficiaries of the benefits of applying for Medicare, and redirect staff performing this function to other activities within the department.
  3. The Department of Health Services, or its successor, should submit the file of potential Medicare eligibles to SSA to identify the number of qualified work quarters and provide this information to EDS. If a beneficiary is married and the spouse's Social Security Number is on file, DHS should also send a request to SSA for the spouse's work history. This procedure should be implemented by December 2004.
  4. The Department of Health Services, or its successor, should establish metrics to evaluate the effectiveness of this outreach program. The data should be used to determine whether to extend the period in which EDS can share the savings beyond the two-year time frame specified in the contract, whether to staff the outreach program with state staff, or whether to discontinue the outreach program. These metrics should be established by April 2005.
  5. The Department of Health Services, or its successor, should determine, by August 2005, whether the Medicare outreach program should be expanded to include other high-cost Medi-Cal beneficiaries.

Fiscal Impact

The state can avoid paying more than $3 million in Medi-Cal program costs for beneficiaries with high-cost chronic diseases by working with EDS to enroll eligible clients in the federal Medicare program. The fiscal estimate is based on actual paid claims for persons with either of four chronic diseases for the years 2002 and 2003. Adjustments have been made to reflect the fact that a small number of these clients already apply for Medicare benefits. To be conservative, the lowest estimated rate for the percentage of these clients who would be eligible for Medicare was used.

The federal government pays 50 percent of the health care costs for clients who are eligible for Medi-Cal. Based on actual paid claim figures dollars, the federal government pays 65 percent of the health costs for clients who are eligible for both Medi-Cal and Medicare. When prescription drugs are covered by Medicare, beginning in January 2006, the percentage of health care costs covered by the federal government will increase slightly each year (until the federal share reaches approximately 72 percent in 2015).

There will be costs to the state associated with enrolling these clients in Medicare. EDS will receive 10 percent of any program savings. The state will pay for the monthly Medicare premiums (currently about $53.60 per month from the General Fund) so that Medicare will pay for all inpatient and outpatient services. There will also be costs for advertising, travel, and other administrative support costs.

This recommendation would not require legislation and no benefits will be realized until after the planning has been completed, clients have been contacted, and the federal government has processed the applications.

General Fund
(dollars in thousands)

Fiscal Year Savings Costs Net Savings (Costs) Change in PYs
2004-05 $0 $0 $0 0
2005-06 $5,303 $1,826 $3,477 0
2006-07 $6,681 $2,857 $3,824 0
2007-08 $8,171 $3,334 $4,837 0
2008-09 $10,405 $4,015 $6,390 0

Note: The dollars and PYs for each year in the above chart reflect the total change for that year from 2003-04 expenditures, revenues and PYs.


[1] Welf. & Inst. C. Section 14124.90; and the Social Security Act, Section 1902(a)(25).
[2] EDS, "Medicare Transition Program" (Plano, Texas, March 2001), p. 1; and interview with Kevin Gorospe, chief, Pharmacy Benefits, Department of Health Services, Sacramento, California (June 14, 2004).
[3] Medicare: The Official U.S. Government Site for People With Medicare, "Medicare Eligibility Tool," http://www.medicare.gov/medicareeligibility/home.asp; and interview with April Williams, Center for Medicaid and Medicare Region IX, San Francisco, California (May 26, 2004).
[4] Social Security Online, "Answers To Your Questions," http://ssa-custhelp.ssa.gov/cgi-bin/ssa.cfg/php/enduser/std_adp.php?p_faqid=164 (last visited June 11, 2004).
[5] E-mail from Rosalyn Echols, Social Security Administration to California Performance Review (May 25, 2004). Rosalyn Echols of SSA stated in an e-mail that many claims for disability benefits have some retroactivity because people file after they become disabled and many file after other public and private disability benefits have been exhausted. In addition, retroactivity is typically granted back to the date of application. Ms. Echols stated that statistical information on the amount of retroactive benefits is available through Freedom of Information requests, but not readily available in the SSA Regional office.
[6] ALS Survival Guide, "Is ALS an Expensive Disease?" http://www.lougehrigsdisease.net/als_what_is_als.htm (last visited June 11, 2004).
[7] Henry J. Kaiser Foundation, "State Health Facts Online," http://www.statehealthfacts.org/cgi-bin/healthfacts.cgi?action=compare&category=Medicare&subcategory=Beneficiaries&topic=As+Percent+of+State+Population (last visited June 11, 2004). There are only three states (Alaska, Tennessee and Utah) that have a lower percentage of Medicare recipients than California.
[8] EDS, "White Paper on the Medicare Transition Program" (Plano, Texas), p. 1.
[9] Department of Health Services, "Medi-Cal Redesign: Improvement and Cost Saving Suggestions," http://www.medi-calredesign.org/pdf/elig_Improvement_and_Cost_Savings_Sugg.doc (last visited June 18, 2004), p. 3.
[10] The Lewin Group, "Medicaid Cost Containment in Washington State," http://www.lewin.com/Lewin_Publications/Medicaid_and_S-CHIP/WashMedicaidCostContainment.htm (last visited June 11, 2004).
[11] E-mail from Carol McCrae, program manager, Medicare Savings Program, Washington Department of Social and Health Services to California Performance Review (June 2, 2004).