The Medi-Cal Squeeze on the State Budget

Although UC is officially unhappy about its allocation in the governor's January budget proposal, it is competing with other state priorities, notably Medi-Cal (the California name for the federal-state Medicaid program). Medi-Cal this fiscal year is costing more than originally estimated.

From an email by Jason Sisney of the Legislative Analyst's Office (LAO):

Part of Successful State Policy to Expand Affordable Health Insurance. As [a] CalMatters explainer notes, the Medi-Cal expansions are among the key policies intended to dramatically reduce the state’s uninsured rate. The article notes, “Close to 94% of Californians have health care insurance, an all-time high insured rate in 2022, according to an analysis by the California Health Care Foundation. That 6% uninsured rate is a steep improvement from a peak of around 15% in 2013, according to the analysis.”

Complex Medi-Cal Estimates Reflect Both Cost Overruns and Savings. Compared to last year’s budget estimate, the January 10 local assistance projections... noted various higher and lower costs, including $2.7 billion more costs for UIS enrollees (taking overall UIS [unsatisfactory immigration status] costs to over $8 billion, according to administration data) and $1 billion less in General Fund costs due to more MCO taxes. Medi-Cal is a huge, complicated program with complex cash flows and accruals, meaning that significant variances (some years overruns and some years savings) from budgeted amounts are common.

Loans Often Provided to Program to Ensure It Can Meet Cash Demands. ...On March 12, 2025, the Department of Finance formally announced that it had approved a $3.44 billion General Fund loan for Medi-Cal’s Medical Providers Interim Payment Fund to ensure continued, required payments to Medi-Cal providers. The General Fund loan is necessary “due to projected increased fiscal year 2024-25 Medi-Cal expenditures compared to the 2024 Budget Act,” Finance said. Such loans are fairly common for California’s Medi-Cal program..., but it is less common for the maximum loan amount to be authorized as is the case this year. (Last year’s loan of $1.75 billion, for example, was approved by Finance on May 7, 2024, primarily due the timing of MCO tax receipts.) In years with program cost overruns, such as this year, budget bill amendments are needed at some point to “true up” overall General Fund costs and, in effect, pay off temporary loans that support the program.

Projected State Deficits Ahead and Possible Federal Cuts. California faces significant General Fund deficits—now projected at over $10 billion per year—in the coming years, as the administration noted in documents accompanying the Governor’s January 10 budget proposal. Major state budget revenue sources—principally Proposition 30/55 taxes on high-income earners and cap-and-trade auction revenues—currently are scheduled to expire in 2030. Amidst these fiscal challenges, Medi-Cal is among the largest non-Proposition 98 (non-school) programs in the General Fund, and its costs—along with medical costs generally in the economy—have been rising notably, so keeping Medi-Cal costs sustainable will continue to be challenging. Federal government cuts or eligibility changes for Medicaid may increase state cost pressures further and reduce health care access across the country.

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Just a reminder that UC presidents often feel they have an understanding with the governor. But these understandings are generally fair weather deals.

From left to right: UC president Dynes and Gov. Schwarzenegger; UC president Yudof and Gov. Jerry Brown; UC president Napolitano and Gov. Jerry Brown.