Mental Health: CheckUp

In November 2004, 53.4 percent of voters approved Prop. 63, the Mental Health Services Act (MHSA). The measure imposed a 1 percent tax on personal income over $1 million to fund expansion of county-operated mental health services. Revenues from this tax are deposited into the Mental Health Services Fund and administered by the California Department of Mental Health (DMH).

The MHSA mandates funding for six different purposes:

1. Community program planning: Aims to bring stakeholders into the process of planning MHSA-funded mental health services. Stakeholders include clients, families, caregivers, criminal justice, housing, social services, and partner agencies.
2. Community services and support: Includes the programs, services, and strategies for people with mental illness. These programs, services, and strategies vary by county and are identified in the community planning process.
3. Education and training: Seeks to increase the number of qualified individuals providing services to address severe mental illnesses.
4. Capital facilities and technology: Addresses housing and information technology needs to support implementation of MHSA-funded community services and support programs.
5. Prevention and early intervention: Supports the design of programs to prevent mental illnesses from becoming severe or disabling, with emphasis on underserved populations.
6. Innovation: Aims to develop and implement promising and proven practices, as well as increase access to and quality of care.

Agencies charged with implementing these components include the California DMH, local county mental health departments, the MHSA Oversight and Accountability Commission, the Mental Health Planning Council, and stakeholders in the California mental health community. These public agencies enjoy a high level of flexibility in fulfilling their MHSA mandates.

The MHSA “millionaire tax” took effect after the November 2004 election and affected about 30,000 taxpayers in its first year. The initial funds from the new tax were deposited into the Mental Health Services Fund in the spring of 2005.

As of May 3, 2007, 56 counties have applied for MHSA funding, and 52 of them have been approved to receive a combined total of $575.3 million. See the MHSA Expenditure Report Addendum, FY 2006-07 (p.16) for a list of counties that have applied for and been approved for funding.

In February 2007, DMH released a Summary Workplan outlining its proposed timelines for implementing all MHSA components through FY 2008-09. Because the components of the MHSA are complex, implementation is being staggered over the first several years as follows:

* Local Planning is a maximum of 5 percent of the total amount distributed during a fiscal year
** 5% of Prevention funding will be available for Innovative Programs
*** 5% of CSS funding will be available for Innovative Programs

Source: MHSA Expenditure Report Addendum, FY 2006-2007, California DMH, May 2007, p.8.

Costs: The California DMH reports that MHSA spending was $168 million for FY 2004-05 and $518 million for FY 2005-06. Projected expenditures for FY 2007-08 are $1.5 billion.

These costs are offset by the millionaire tax imposed by Prop. 63, which has raised far more revenue than initially projected. Before the November 2004 election, the Legislative Analyst’s Office (LAO) estimated that the initiative would raise about $800 million in state revenues annually by FY 2006-07. Total tax revenues from Prop. 63 were $253.8 million in FY 2004-05. Then, because many incomes in the upper tax brackets increased significantly in 2005, revenues jumped to $1.3 billion in FY 2005-06 and an estimated $1.5 billion in FY 2006-07. Projected revenues for FY 2007-08 are $1.7 billion.

DMH is maintaining a “prudent reserve” of funds to maintain a consistent level of funding from year to year, as top incomes may decline in the future. For details on state MHSA revenues and spending, see the MHSA Expenditure Report Addendum, FY 2006-07.

The rapid influx of tax revenues has presented DMH with two dilemmas. First, a management infrastructure for spending this huge increase in funds did not exist and had to be built quickly. And second, new Prop. 63 funding must be used to create and expand new programs only, so many existing county mental health programs are still facing budget cuts.

Potential savings : Before Prop. 63 passed, the LAO predicted that the initiative could reduce other state and local expenses related to state prison and county jail operations, medical care, homeless shelters and social services programs. Read the 2004 LAO report.

It is still too early to know whether Prop. 63 will result in such savings, since funding has only been distributed for just over two years. Not only must the Prop. 63 programs be fully in place before they can reduce expenditures, but they also must be in place long enough to affect mental health in the state.

Proponents said: During the Prop. 63 campaign, proponents argued that the MHSA would support innovative programs that are proven to work. It is too early to know how well MHSA-funded programs work. However, the measure includes several requirements regarding program effectiveness. For example, MHSA-funded prevention and early intervention programs must include “services similar to those provided under other programs effective in preventing mental illnesses from becoming severe, and shall also include components similar to programs that have been successful in reducing the duration of untreated severe mental illnesses and assisting people in quickly regaining productive lives” (MHSA section 4, part 3.6c).

As mentioned above, Prop. 63 proponents also argued that the measure would reduce other state health care, homeless shelter and law enforcement expenses and provide effective treatment for all of those being denied care. It is also too early to know whether these assertions are true. The Petris Center on Health Care Markets and Consumer Welfare, a research center at the University of California, Berkeley, plans to study these issues but will not have an answer for at least three years.

Opponents said:Opponents argued that MHSA funding is “tied to dangerously volatile income sources, which can vanish in a heartbeat.” Taxes on incomes over $1 million are indeed sensitive to economic conditions, but so far this has worked in DMH’s favor, as the “millionaire tax” has brought in far more revenues than originally projected.

Opponents also said, “[proponents] claim that similar programs have ‘demonstrated their effectiveness’ in terms of ‘providing services,’ but that is not the same thing as reducing mental illness or manifestations of it.” While effective provision of mental health care does not equate to effective mental health care, proponents clearly intended to reduce mental illness. As the Petris Center studies the MHSA, the measure’s effectiveness will become clearer.

In addition, opponents argued that no evidence shows that state and local costs have declined as a result of providing mental health care. This is true for California, although lack of evidence could simply mean that data was simply never collected to determine whether mental health care provision has saved money for state and local governments in California. The Petris Center is collecting state and local-level data for health care costs and savings related to the MHSA.

Health policy experts and economists generally agree that providing mental health services can reduce general medical costs (Olfson, Sing, and Schlesinger, “Mental health/medical care cost offsets; opportunities for managed care,” Health Affairs v18, n2: 80). However, Olfson, Sing and Schlesinger point out that cost savings from providing mental health care are only likely with careful implementation of a given mental health care program (p.81).

Finally, opponents argued, “[t]he benefit is much smaller and the price tag much larger than proponents are telling you.” As discussed above, benefits from the MHSA are yet to be determined. Moreover, the price tag depends on those benefits. Prop. 63 may not pay for itself, but if the MHSA creates cost savings for the state, then those savings should be subtracted from any costs incurred by the measure.

The Petris Center on Health Care Markets and Consumer Welfare has received a grant from the California HealthCare Foundation to study the implementation and effects of the MHSA. The Center says it will take several years to understand the Act’s impact fully.

The Center plans to study several aspects of the MHSA. Data collection began in 2006 to determine whether Prop. 63 has reduced state health care spending overall, as well as how many Californians MHSA-funded programs serve.

The Center is also studying MHSA implementation, particularly county-level processes and management of system change stimulated by the MHSA. It is conducting annual site visits and interviews with county mental health staff and stakeholders to evaluate implementation in 12 counties.

The study will also measure the costs and benefits of new services made available through new funding, such as changes in rates of homelessness, incarceration, and access to mental health care. The Center plans to use this information to estimate which services and service strategies, under which circumstances, produce the most successful recovery-oriented outcomes.

“Once data is collected,” say MHSA staff, “it could take a minimum of three years to see changes. New programs are currently being implemented as part of the counties’ three-year community services and support plans. Changes in the number of Californians receiving mental health care and increases in services provided to racial or ethnic minorities will probably be seen first. It may take longer to see differences in homeless or incarcerated populations and in suicide rates.”