Understanding Recent Medi-Cal Spending in California

Medi-Cal, California’s Medicaid program, provides free or low-cost coverage to more than one in three Californians, including children, pregnant individuals, seniors, and people with disabilities. It plays a central role in keeping people healthy and supporting jobs, businesses, and the broader economy.

In recent state budget discussions, Medi-Cal has been framed as a main driver of the state’s structural budget shortfall, and policymakers are considering additional cuts after already reducing support for the program last year. But this framing overlooks a fundamental issue and Californians’ health needs. California’s structural shortfall reflects a mismatch between the public investments that people want and need and the resources necessary to support them. This problem would be better addressed by closing gaps in the state’s tax base, not cutting vital services like health care.

Medi-Cal Spending Reflects Broader Health Care Trends

Medi-Cal spending reflects system-wide trends that affect the entire health care system — not just Medicaid. A major driver is rising health care prices. Across the country, hospitals and physicians are raising prices for care and pharmacies are charging more for prescription drugs. As prices increase, delivering care becomes more expensive, which raises overall health care spending.

In addition to rising prices, the California Legislative Analyst’s Office recently outlined other cost factors impacting Medi-Cal spending, including:

• Demographic changes. More seniors and people with disabilities are accessing needed care, and because they often have more complex health needs, average spending per person is higher.
• Increased use of services. More people are receiving care in high-cost settings, such as hospital stays, and using a range of services.
• Higher prescription drug spending. The growing use of high-cost medications has been a significant contributor to recent spending increases.
• Policy choices to expand access. State investments have helped more Californians get care, improving health and financial stability.

Rising Medi-Cal spending, in part, reflects a state meeting the needs of its residents by helping more people get care they were previously unable to access. California’s uninsured rate has dropped significantly over the past decade, reflecting meaningful gains in access to care. Fewer Californians are delaying treatment, rationing prescription medications, or going without care they need because they cannot afford it.

But these gains are now under threat from harmful federal policy decisions. Republicans in Congress and the Trump administration enacted H.R. 1, which cut nearly $1 trillion from Medicaid over the next decade. While these cuts do not change the underlying cost of care, they increase pressure on the state budget by shifting a greater share of those costs to California.

Cutting Medi-Cal Is Counterproductive

Cutting Medi-Cal won’t solve long-term budget challenges, and it can make them worse. Reducing Medi-Cal enrollment or scaling back benefits harms people’s health while also weakening a major economic engine that supports jobs, health care providers, and local economies across the state.

When people lose health coverage, they are more likely to delay or forgo treatment. As a result, small health issues can become serious and expensive to treat. Over time, this adds new pressures to the state budget due to increased emergency care or uncompensated care.

Cuts to Medi-Cal also affect local economies. Reducing enrollment or covered services means less funding flowing into communities. Each year, Medi-Cal dollars support health care workers, hospitals, pharmacies, and many other parts of the health care system. When fewer people are covered or fewer services are reimbursed, providers bring in less revenue, which can lead to job losses and slower economic activity across the state.

While Medi-Cal cuts may offer short-term budget relief, they do not address the underlying drivers of cost growth and they come with significant trade-offs, including:

• Reduced access to care or fewer covered services.
• Higher out-of-pocket costs for Californians.
• Increased strain on health care providers and safety-net systems.
• Job losses and reduced economic activity in communities across the state.

California’s Structural Deficit Reflects Insufficient Resources to Meet Californians’ Growing Needs

At its core, the structural budget deficit reflects a mismatch between the ongoing resources raised by the state’s tax system and the public investments that are necessary to meet Californians’ needs. But cutting vital spending is not the solution because:

• Recent investments to address people’s essential needs have improved Californians’ quality of life.
• Californians continue to have significant unmet needs, and now federal cuts threaten to upend recent progress addressing them.
• California wastes billions of dollars each year on tax breaks for corporations and high-income households that take vital resources away from community needs.
• Inequities in our state’s tax system deprive the state of resources that could be better used to improve Californians’ quality of life.

Policymakers Should Focus on Sustainable Solutions

Addressing California’s budget challenges requires solutions that reflect the full scope of the problem. Increasing revenue is the most immediate way policymakers can close large, ongoing shortfalls. Other approaches can reduce costs and improve the system, but they may take time to generate savings. Rather than reducing Californians’ access to health coverage focusing on cuts to Medi-Cal, policymakers should:

• Address underlying health care cost growth. Policymakers can build on efforts like the Office of Health Care Affordability to slow cost growth across the entire health system.
• Strengthen preventive and primary care. Investing in prevention keeps people healthier while reducing avoidable health care spending.
• Improve system efficiency. Reducing administrative barriers and improving care coordination can help ensure resources are used effectively.
• Identify sustainable and equitable revenue sources. Aligning state revenues with the cost of meeting Californians’ needs is critical to supporting long-term fiscal stability.

State leaders should prioritize immediate revenue solutions to stabilize the budget while also pursuing systemic changes that will improve affordability and sustainability over time. Protecting access to health care is essential to both the well-being of Californians and the state’s long-term economic stability.