Newsom’s Office Seeks Another $2.8b To Plug Medicaid Gap

SACRAMENTO, California — Gov. Gavin Newsom’s administration is asking for an extra $2.8 billion immediately for the state’s Medicaid program, Medi-Cal, on top of a recently proposed $3.44 billion loan.

New budget figures laid out to state lawmakers on Monday showed the state will need to allocate additional funds from the general fund to fully cover Medi-Cal bills through the end of the year, after the loan proposed by the administration last week.

The figures also show that the biggest contributor to this year’s Medi-Cal hole is the insurance of undocumented immigrants, which is costing $2.7 billion more than the state had planned.

The new budget figures come as California navigates what has become a larger politically-charged debate over insuring undocumented immigrants — part of Newsom’s pledge to bring the state closer to universal health care coverage, regardless of immigration status. The state is trying to balance that promise with increased scrutiny of its immigration policies from the Trump administration in Washington.

“We took these steps because it’s important to maintain our commitment to our providers and plans to make timely payments for the remainder of the current year to ensure Californians and those on Medi-Cal get the services,” Michelle Baass, the director of the Department of Health Care Services, told state lawmakers in an Assembly budget subcommittee hearing Monday.

A host of other changes to the Medi-Cal program in the last year have kept enrollment higher than anticipated — a factor Baass has noted is contributing to the overall shortfall aside from coverage for undocumented immigrants.

Between the loan and the extra $2.8 billion, Baass said, the program will be able to cover its bills through the end of the year.

Why it matters: The higher costs reflect some of the most pressing issues in health care nationwide: the rising price of pharmaceuticals, a larger aging population and the coverage of undocumented immigrants through public insurance programs.

The budget issues are especially pertinent now as congressional Republicans debate hundreds of billions of dollars in cuts to Medicaid at the federal level, throwing nearly every aspect of the Medi-Cal coverage into question.

“Trump and the Republicans in Congress are trying to take a wrecking ball to Medicaid,” state Senate Budget Chair Scott Wiener separately told POLITICO. “Depending what they do to Medicaid, it could dwarf the amount [of the loan] that was disclosed by the [Newsom] administration last week.”

The loan: Last week, the Newsom administration announced it would need to borrow $3.44 billion — the maximum amount allowed for the state — to cover Medi-Cal’s costs through the end of March. The news came as a surprise to some lawmakers, prompting questions about the scale of the problem, as well as criticism from Republicans over the costs for undocumented residents.

Wiener voiced criticism to POLITICO about calls to completely cut coverage for undocumented Californians, who work and pay taxes into statewide programs like Medi-Cal — a sentiment voiced by other Democrats in the Assembly.

“While some have sought to politicize this loan request, and they see it as an opening to attack the most vulnerable Californian communities, we should all be clear about what the greatest threat to California’s ability to provide health care really is,” said subcommittee chair Assemblymember Dawn Addis on Monday.

“It is our own federal government that appears fixated on rectifying years of its own mismanagement on the backs of those with the least economic means who are seniors, people with disabilities and others in our community,” she added.

Baass laid out several other reasons why this year’s Medi-Cal budget was so much higher than expected: Cash flow has been uncertain to manage because of changes to a tax on certain health care plans; enrollment that was higher than anticipated because of some program changes leftover from the Covid-19 pandemic; and the full expansion of Medi-Cal to everyone regardless of immigration status in 2024.

This year: In addition to the higher-than-expected cost for undocumented immigrants, the increased cost of prescription drugs accounts for $540 million of the $2.8 billion gap identified Monday, especially pricey diabetes drugs like Ozempic. Another $1 billion overrun is from a variety of other costs, like more seniors being on the program than in years past.

There’s also $1 billion less to play with in the budget, because November’s Proposition 35 set out strict requirements for using the managed care organization tax that administration officials had planned on tapping into.

Next year: The Newsom administration is proposing an extra $4.4 billion in the 2025-26 budget, or an 11.8 percent increase, for the state’s insurance program. The largest driver of that increase — $3.6 billion — is MCO tax revenue that now will be diverted to the spending priorities laid out in Prop 35.

Next year’s budget will also have to contend with an estimated $215 million increase in pharmacy costs and a $269 million increase in other costs.