Jan. 10 budget noted Medi-Cal cost growth
Temporary loan for program cashflows now authorized under routine mechanism
Medi-Cal costs are in the news. In light of that, I wanted to provide some basic information on the Medi-Cal budget.
Medi-Cal May Bear Brunt of Future Federal Cuts. Medi-Cal is California’s Medicaid program for low-income people. Federal government Republicans are poised to enact significant cuts in federal funding for Medicaid, which would affect states across the country. The exact manner and scale of cuts to the program are not known, so none of the estimates below includes projections of those possible cuts.
Primarily Federal Funded, With Significant General Fund and MCO Tax Support. As noted in the Governor’s January 10 budget summary (page 47 here), “the Medi-Cal budget includes $174.6 billion ($37.6 billion General Fund) in 2024-25 and $188.1 billion ($42.1 billion General Fund) in 2025-26. Medi-Cal is projected to cover approximately 15 million Californians in 2024-25 and 14.5 million in 2025-26—more than one-third of the state’s population.” Managed care organization (MCO) taxes are a major funding source in addition to the General Fund, and both those state funding sources generate more federal support. Over $100 billion of annual Medi-Cal costs are now paid from federal funds.
January 10 Estimates Showed $2.8 Billion Cost Overrun. The administration’s January 10 Medi-Cal local assistance estimates (online here, see page 1) projected that the program’s medical care services costs would be $2.8 billion (8.4%) above the program’s General Fund appropriation for 2024-25, as that appropriation was reflected in the June 2024 state budget plan.
Various Causes Cited for Cost Pressures. The Governor’s January 10 budget summary (see page 48 here) noted the projected cost overrun is “driven primarily by higher overall enrollment due to continuing unwinding flexibilities and higher-than-projected caseload and pharmacy costs, offset by additional support from the MCO tax.” Higher pharmaceutical costs in the program also were highlighted.
Various Expansions Recently for Medi-Cal Populations, Including U.S. Citizens. As the Legislative Analyst’s Office (LAO) noted in a recent report on the Medi-Cal senior population, the state has expanded Medi-Cal in several different ways in recent years affecting both residents with “satisfactory immigration status” (SIS) and “unsatisfactory immigration status” (UIS). (See the report here under the heading “Recent Policy Changes Affecting Seniors.”) The LAO report highlights a major policy change to eliminate the program’s asset tests. Other such policy changes affect Medi-Cal populations of various ages, including expansion of eligibility to low-income UIS residents. The LAO report discussed the significant recent growth, relative to budget estimates, of the Medi-Cal senior population, which was also discussed in the January 10 local assistance estimates (see page 7).
Part of Successful State Policy to Expand Affordable Health Insurance. As this Cal Matters 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 (see pages 4-5) noted various higher and lower costs, including $2.7 billion more costs for UIS enrollees (taking 2024-25 UIS General Fund Medi-Cal costs to $8.4 billion and $9.5 billion across all funds, 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. Today, 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, as authorized by Section 16531.1 of the Government Code (first enacted more than 25 years ago), 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.
Edited on March 14 to clarify General Fund and all funds costs for UIS Medi-Cal benefits.