Growing Pains as California Adds Social Services to Medicaid

October 26, 2023

Community health worker Hector Gallegos and nurse Jose Lopez gather supplies to treat homeless patients in Modesto, California, on August 25, 2022. (Photo by Ryan Levi)

California’s Medicaid program is two years into the nation’s most ambitious effort yet to cover non-traditional health care services like housing and food for some of the state’s sickest and most vulnerable residents. Everyone expected this transformation — known as CalAIM — to take some time to hit its stride. This week, we dig into CalAIM’s early challenges and what’s being done to right the ship.

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Pooja Bhalla has spent 20 years working for nonprofits that help people without a place to live find somewhere to stay when they are too sick for the streets, but too healthy for the hospital.

When California’s Medicaid program announced plans in 2021 to help some of the state’s nearly 170,000 homeless residents find housing, Bhalla was thrilled. And she knew that becoming a part of Medicaid would require a complete organizational transformation.

“We were very, very worried,” said Bhalla, the CEO of the Illumination Foundation in Southern California. “Like, how the heck are we going to do this?”

Almost overnight, Bhalla had to convert her housing nonprofit into something that worked more like a doctor’s office or a hospital — able to bill private health insurers and navigate Medicaid’s regulations.

“We had to build our own billing department,” Bhalla said. “There were systems that we’ve never had to think about before. There were different codes for each service.”

Social service providers like the Illumination Foundation are key to the success of CalAIM — California’s ambitious overhaul of its Medicaid program, which provides health insurance for about 15 million low-income and disabled Californians. State health officials are betting that addressing people’s social needs will make them healthier and drive down health spending long term. 

Under CalAIM, the state’s Medicaid program now pays for 14 social services that have been shown to improve people’s health, including covering someone’s security deposit, delivering medically-tailored meals or providing a safe place to sober up. CalAIM also created a new benefit, known as enhanced care management, to help people navigate all of the complex medical and social service bureaucracies.

CalAIM’s new service offerings primarily target the 5% of people on Medicaid in California who account for half of the program’s spending. Those individuals often have multiple chronic conditions — like diabetes, heart disease or kidney failure — as well as significant social needs.

“CalAIM is really about identifying the most vulnerable individuals in Medicaid [for whom] health care services alone were not meeting their needs,” said Jacey Cooper, California’s Medicaid director.

This is the first time California’s Medicaid program has paid for social service interventions statewide. Medicaid officials throughout the U.S. are watching to see if California can prove the theory that providing more social service support will translate into fewer expensive hospital visits, trips to the ER and nursing home stays.

California officials say it’s still too soon to know if any savings from CalAIM will outweigh the costs. Nearly two years in, state data show more than 100,000 low-income Californians have received CalAIM services. But providers, insurers and Medicaid officials also recognize that missteps in CalAIM’s rollout continue to leave many eligible patients on the outside looking in.

Switching from grants to government

Nearly 500 organizations signed up to provide CalAIM’s new social services in 2022. The vast majority of them were working with Medicaid for the first time, and that transition has been difficult. 

“It was like building a whole new organization,” Bhalla said.

The state has handed out about $800 million to help these groups build up their infrastructure. Bhalla’s Illumination Foundation got $1.6 million, but they still needed to take out nearly $2 million more in loans to complete their transformation to Medicaid provider.

Social service providers like Bhalla say their biggest challenge has been working with the 23 private health insurers that California pays to cover people on Medicaid. The insurers include national giants like Blue Cross and Kaiser Permanente, as well as some counties and local nonprofits. 

Each insurer has its own requirements regarding which new services it will pay for, how it approves patients for care, what kind of documentation is required and how the providers have to submit information. Some health plans have felt like true partners, Bhalla said – easy to work with and responsive to her concerns. Others have consistently taken weeks or even months to approve services and have been difficult to reach when problems arise.

“I just can’t stress enough the administrative burden with all the different health plans,” Bhalla said. “We have to document in our own system. We have to document in their system. There’s claims that are denied. They come back to us, we submit everything. They still don’t have what they need.”

Despite the hassles, Bhalla believes in CalAIM and says it’s saving lives every day. But she also sees how these breakdowns with insurers can hurt the very people the program is supposed to help. 

Bhalla recalls, for example, a 49-year-old Medicaid patient named Gregory who was referred to the Illumination Foundation seven months ago after a short stint in the hospital. He was homeless and had numerous chronic medical conditions including chronic renal disease, hypertension, diabetes and depression.

The Illumination Foundation knew Gregory needed a CalAIM enhanced care manager to help him get to all his medical appointments and start looking for housing. But it took his health plan six weeks to approve the service. By then, Gregory was back on the street.

Instead of getting the medical and social services CalAIM promised him, Bhalla said, Gregory has been in and out of the hospital a dozen times and still has no place to live.

“He hasn’t been connected to a doctor. He’s not taking his medications. He needs surgery. His health is deteriorating, and if we don’t get him connected to the system, it’s only going to get worse,” Bhalla said. “I feel like the system has failed him.”

Health insurers struggle to take on their new role

California’s Medicaid overhaul has also required health insurers that are accustomed to paying for traditional health care services like hip replacements and clinic visits to transform their operations to also include social services.

Imagine CalAIM is an orchestra. Social service providers are the musicians — a cellist or bassoon player — and insurers are the conductor, responsible for assembling all the musicians and making sure they’re playing their part.

Under CalAIM, health plans have to identify which patients qualify, find organizations like the Illumination Foundation to provide the services, and build a system to approve and pay for all of it. 

“[Insurers] are like a deer in headlights — willing and wanting to learn, but not really knowing what the heck to do,” said Kelly Bruno-Nelson, who runs CalAIM for the nonprofit health insurer CalOptima Health in Orange County.

Bruno-Nelson said insurers support CalAIM’s underlying mission — better care through more holistic services. But they’ve struggled to build enough provider capacity to meet Medicaid officials’ expectations, even with significant financial support from the state.

CalOptima hired Bruno-Nelson last summer after struggling to launch these new services in early 2022. Bruno-Nelson came from the world of social services – having spent the previous 15 years running a homelessness nonprofit in Los Angeles – and CalOptima’s leaders hoped her background would help them turn things around.

First, Bruno-Nelson used her connections to ink contracts with more than 120 social service nonprofits to offer CalAIM services. She then convinced her bosses to give each of the organizations $100,000 upfront, because she knew they would need the money to adapt to Medicaid’s bureaucratic and regulatory needs.

“Oftentimes a health plan’s mentality is, ‘Well, we’ll help you after we know that you are doing good work,’” Bruno-Nelson said. “But the issue is, how can I do good work if I don’t have the money to do good work? And you go in this circle. So we said, ‘OK, we’re going to trust first and we’re going to distribute dollars and then get the rewards afterward.’”

In addition to giving the groups money, CalOptima spent months training their staff and holding their hands through the paperwork and the red tape of working with Medicaid. After that, Bruno-Nelson checked in regularly with them to hear their concerns and make quick course corrections when needed.

“It started with just listening and doing something with the information that we heard,” she said. “We can’t just listen and say, thanks for telling us what you think, and now we’re going to go do whatever the heck we want to do.”

This “listen-first” approach helped CalOptima significantly increase the number of CalAIM services it could offer and the people the health plan could help. But it also cost the insurer more than $100 million.

“These are financial decisions,” Bruno-Nelson said. “And so each health plan has to make those decisions for themselves.”

A lot of plans have been hesitant to invest in these new services, she added, but that’s changing, as more insurers come around to the idea that their jobs go beyond paying for traditional medical services. In CalAIM’s first year, only three of the state’s 58 counties had health plans offering all the new social services. By August 2023 that number had grown to 13 counties, according to state officials. 

Challenges spur changes

Many providers and health insurers in California remain committed to CalAIM. They recognize that overhauling the state’s Medicaid program at the tail end of a global pandemic was always going to be a long and difficult process. But fewer people are getting services than initially hoped and some social services providers have left the program because of the cumbersome paperwork. So state Medicaid officials are already making significant changes.

The state has increased how much it pays providers for CalAIM services by about 50% and is taking away some of the flexibility insurers have had to write their own rules. As of January 1, 2024, the state will require all health plans to use the same criteria to determine who is eligible for CalAIM services. State Medicaid officials will also force insurers to streamline their paperwork so patients get their care approved faster. 

“We do need to be more prescriptive,” said Medicaid Director Jacey Cooper. “We needed to reduce administrative burden for the providers. We needed to increase utilization, and we needed to increase timely access to the services – because that’s what we were seeing as the barriers.”

If she could do it all again, Cooper said, she would have allowed more time before CalAIM launched for insurers and social service providers to prepare for their new roles and build trust — one of many lessons she hopes Medicaid officials in other states can learn from California.

“Being the first is hard,” Cooper said. “We’re going to make a lot of the mistakes that other [states] get to come and sit around a table and [learn from]. We get to tell them all the things to do different.”

As proof that the program is headed in the right direction, Cooper says 26% of homeless Californians — some 40,000 people — got some kind of CalAIM service last year. In fact, California just asked federal Medicaid officials to let the state pay for six months of rent for people who find housing through CalAIM — doubling down, in a sense, on the idea that helping people get and stay housed is part of Medicaid’s job.

And while no one expects CalAIM to solve California’s housing crisis, that 26% benefitting from CalAIM so far is a reminder that three-quarters of homeless Californians are still waiting for help. Cooper said everyone — providers, insurers and state officials — have to step up to smooth out the program’s kinks so fewer people like Gregory fall through the cracks — eligible but unable to get the care they need.

Tradeoffs coverage of CalAIM is supported in part by the California Health Care Foundation.

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Episode Resources

Selected Research and Reporting on CalAIM:

CalAIM Explained: A Five-Year Plan to Transform Medi-Cal (California Health Care Foundation, 7/26/2021)

Health care ‘game-changer’? Feds boost care for homeless Americans (Angela Hart, KFF Health News and CNN, 8/16/2023)

ECM and Community Supports Year One Report (California Department of Health Care Services, 8/3/2023)

‘Go to the people’: Street medicine teams bring health care to the unhoused (Larry Valenzuela, CalMatters, 7/11/2023)

Addressing Social Needs through Medicaid: Lessons from Planning and Early Implementation of North Carolina’s Healthy Opportunities Pilots (Katie M. Huber, William K. Bleser, Rebecca G. Whitaker, Karina Vasudeva, Jessye Halvorson, Amanda Van Vleet, Michelle J. Lyn and Robert Suanders; Milbank Memorial Fund and Duke Margolis Center for Health Policy; 9/2023)

CalAIM Experiences: Implementer Views After First Year of Reforms (Goodwin Simon Strategic Research and the California Health Care Foundation, 7/2023)

The Push to Bring Medicaid Behind Bars (Ryan Levi and Dan Gorenstein, Tradeoffs, 2/23/2023)

California Bets Big on Housing in Medicaid (Ryan Levi and Dan Gorenstein, Tradeoffs, 9/22/2022)

Episode Credits


Pooja Bhalla, DNP, RN, CEO, Illumination Foundation

Jacey Cooper, Medicaid Director, California Department of Health Care Services

Kelly Bruno-Nelson, MSW, Executive Director of Medi-Cal/CalAIM, CalOptima Health

The Tradeoffs theme song was composed by Ty Citerman, with additional music this episode from Blue Dot Sessions and Epidemic Sound.

This episode was reported by Ryan Levi, edited by Deborah Franklin and Dan Gorenstein, and mixed by Andrew Parrella and Cedric Wilson.

Special thanks to John Baackes, CEO of L.A. Care Health Plan.

Additional thanks to: Elaine Chhean, Glen Hilton, Susan Philip, Melora Simon, Sandra Wilkniss and Cheryl Winter, the Tradeoffs Advisory Board and our stellar staff!