Report 2022-112 Recommendation 2 Responses
Report 2022-112: CalOptima Health: It Has Accumulated Excessive Surplus Funds and Made Questionable Hiring Decisions (Release Date: May 2023)
Recommendation #2 To: CalOptima Health
To comply with county ordinance and to ensure that in the future it does not accumulate surplus funds in excess of its reserve policy, by June 2023 CalOptima should adopt a surplus funds policy or amend its policy for board-designated reserves to provide that if surplus funds accrue, CalOptima will use those funds to expand access, improve member benefits, or augment provider reimbursement, or for a combination of these purposes. The policy should require that the board review the amount of surplus funds each year when it receives CalOptima's audited financial statements and direct staff to create an annual spending plan subject to the board's approval to use those funds within the next 12 months.
60-Day Agency Response
The CalOptima Health Board of Directors reviewed the current reserve policy at the June 1, 2023, Board of Directors meeting. In addition to the current reserve policy, the Board reviewed CalOptima Health's reserve position in comparison to other Medi-Cal managed care plans, reviewed scenarios for different minimum reserve levels and discussed pending DHCS financial performance guidance in the upcoming 2024 Medi-Cal contract. The Board directed staff to return with additional information on the status of the enacted State Budget and the federal debt ceiling negotiations, and DHCS's financial performance requirement. In light of this additional information, the Board will review and direct staff to formalize the current reserve process into policy at the September Board of Directors meeting.
Given sufficient reserves are needed to provide stability in healthcare delivery, the minimum threshold, pending Board of Directors' adoption, does not mandate that reserves be drawn down to this level. The Board shall have discretion on the appropriate reserve level, above the minimum threshold, taking into account current and future economic conditions.
The Board reviews levels of total assets and Board-designated reserve funds on an annual basis, at minimum, during the annual operating budget. During this review, the Board will assess resources to be used for the purposes of expanding access, improving benefits, and/or augmenting provider reimbursement. CalOptima Health must ensure tactical use of government funds to support our members and providers. It would not be fiscally prudent to spend all unallocated funds above the minimum reserve requirement within a defined period.
- Estimated Completion Date: 10/2023
- Response Date: June 2023
California State Auditor's Assessment of 60-Day Status: Pending
CalOptima's response indicates that it is assessing potential changes to its policies. However, if CalOptima believes that it is not fiscally prudent to spend the unallocated funds in excess of its established reserve requirement, we encourage it to revise the reserve requirement to a level it considers prudent.
Agency responses received are posted verbatim.