States Turn To Foundations To Help Pay Costs of Health Overhaul

Short on cash and time, officials in California and at least a dozen other states have turned to philanthropies to help pay for the extra work required under the federal health law.

Nowhere do the ties between private health foundations and state government run deeper than in California, where Democratic Gov. Jerry Brown’s administration is grappling with a projected $10.8 billion deficit in 2012, leaving little money for implementing the law. Three major foundations – the California HealthCare Foundation, the Blue Shield of California Foundation and the California Endowment – have stepped into the breach with money for actuaries, economists and other consultants.

“Given our fiscal crisis, we’re not able to get the funds to begin implementing [the health law], and while it’s a clear policy goal, we have to focus on eliminating services” instead, said Toby Douglas, director of the California Department of Health Care Services. Private philanthropy can continue “planting seeds and really driving that change” when it comes to the law.

The California HealthCare Foundation is funding two consultants to work on the state’s application for federal funding for a health insurance exchange, a cornerstone of the law that will allow individuals and small businesses to shop for coverage in a new online marketplace.  It must be in place by 2014, and though the state was the first to pass a law authorizing the exchange, last September, it has committed few resources to actually building it.

“It is a sign of the times,” said Marian Mulkey, the California HealthCare Foundation’s health reform director.

Two years ago, as the state’s budget problems deepened, the foundation took its first plunge into paying for state obligations, underwriting California’s share of a federal health IT project. “Five years ago, I can’t imagine our board saying we’d be prepared to put up the state match,” she said, but it had become clear that California couldn’t afford the expense.

The Robert Wood Johnson Foundation, based in New Jersey, is spending up to $10 million over a year to assist 10 other states.

“States are just obviously struggling now because of the economy, so there’s a great need to go beyond the academic papers and help operationalize” reform plans, said Heather Howard, a Princeton lecturer and former New Jersey health commissioner who is working on a Robert Wood Johnson Foundation grant to provide “technical assistance” to states, such as actuaries, who estimate medical risk, and consultants who can project the costs of proposals.

Robert Wood Johnson is assisting Alabama, Colorado, Maryland, Michigan, Minnesota, New Mexico, New York, Oregon, Rhode Island and Virginia. Political leaders in some of those states oppose the law, but requested the technical help, Howard said.

Budget problems – states’ 2012-13 deficits are expected to total $150 billion – aren’t the only reason states are seeking foundation support. Lengthy procurement procedures mean it can take many months for states to hire experts, making it tough to meet health law deadlines, Howard said.

In May, the Health Care Foundation of Greater Kansas City, the United Methodist Health Ministry Fund and other Kansas charities set up a $450,000 fund to finance the state’s implementation. In Ohio, the George Gund Foundation brought together charities and state officials last fall to discuss potential financing arrangements. Gund representatives did not return calls seeking comment.

The foundations, which are nonpartisan, all list expanding health care access as a key part of their organizational mission in tax filings. One of the organizations, the California Endowment, paid for a television ad with TV celebrity Dr. Mehmet Oz, urging people to take full advantage of the law.  The ad ran immediately after last year’s elections.

An Internal Revenue Service primer on nonprofits says “lessening the burdens of government” is a tax-exempt “charitable” activity. In May 2009, a report commissioned by the Department of Health and Human Services under President George W. Bush explored potential partnerships between government and charities.

Although the law was supported by Democrats and vehemently opposed by Republicans, the foundations’ contributions haven’t sparked controversy. 

Peter Long, president of the Blue Shield of California Foundation, said his organization distances itself from potential conflicts. When the foundation receives requests for help from the state, it contracts with experts who can handle the work, and then steps back, leaving the tough policy choices to public officials. “We’re inspector # 12,” he said, referring to the calling cards anonymous quality checkers might leave in the pocket of a new garment.

Long’s foundation is funding three projects. It has helped the state build a timeline to guide its overhaul work; hired actuaries to advise policy makers on the state’s Medicaid enrollment process; and hired Bill Obernesser, an independent consultant, to advise the board governing the exchange.

Long said his organization and other charities had supported the government in the past, but “the pace and scale” of that support has increased in response to the heightened demand.

The California Endowment has agreed to give the state $500,000 to pay for planning a Medicaid “health home” project that would allow the state to draw down more federal dollars for activities like coordinating patients’ services. The federal government will match the Endowment’s money.

“We’re making the dollars available to them to undertake this process,” said Richard Figueroa, the Endowment’s health and human services director. California has “a very strange fiscal situation, so it’s unclear whether they would have moved on this on their own.”

The California HealthCare Foundation hired Wakely Consulting Group to advise lawmakers and state officials on shaping legislation to create the exchange last year. Wakely sent Jon Kingsdale, who helped design the exchange Massachusetts uses in its own health system, to help out in Sacramento.

California officials said they also are seeking outside support to evaluate sweeping changes to their Medicaid program. Mulkey, of the California HealthCare Foundation, said it would be willing to do this.  She said even though the federal government requires the evaluation, “California has said they don’t have the resources to do this, so they probably would not do it absent external foundation support.

cweaver@kff.org