Health Policy Updates: MediCal Budget Crisis
As seen in Politico Pro: Medicaid shortfall forces California to borrow $3.44B; the surprise budget gap comes as Congress weighs large cuts to the program.
SACRAMENTO, California - California will need to borrow $3.44 billion to close a budget gap in the state's Medicaid program, Newsom administration officials told lawmakers Wednesday in a letter obtained by POLITICO.
The budget pressure will bring fresh scrutiny to the state's coverage of undocumented immigrants, which is costing more than first budgeted.
Originally, the state estimated it would cost around $3 billion per year to insure that population. But one year after the program has been fully implemented, it's turning out to be more expensive than anticipated. Gov. Gavin Newsom's current budget proposal estimates the state will shell out $8.4 billion to cover undocumented immigrants in Medi-Cal in 2024-2025, and $7.4 billion in 2025-2026.
The budget pressure could force hard choices, like capping enrollment or limiting benefits.
California has been covering undocumented children on Medi-Cal since 2016. Under Newsom, the program has slowly expanded, to young adults in 2020, older adults in 2022, and then all ages in 2024.
The program has never been a favorite in conservative circles, and now Congress is eyeing potentially dramatic cuts to Medicaid. State Republicans like Assemblymember Carl DeMaio and Senate Minority Leader Brian Jones have been hammering the $8.4 billion price tag for being far higher than the original estimate, critiques that made it all the way to Elon Musk's posts on X.
A variety of factors have pushed up Medi-Cal costs over the past few years. The state anticipates spending around $42 billion on the program in 2025-26, a $4.5 billion increase over the last budget.
Pharmacy costs have been rising across the board, and they're starting to weigh down the Medi-Cal budget for citizens and immigrants alike. In January, Newsom's budget included an extra $1.3 billion in state funds for pharmacy costs in 2024-25, and an extra $1.2 billion for 2025-26 to account for the extra Medi-Cal pharmacy expenses. High-cost drugs like those for obesity and diabetes have especially hit the budget.
There are also more seniors in the program than there were previously. According to the Legislative Analyst's Office, there are 225,000 more seniors in Medi-Cal than there were before the pandemic, a roughly 40 percent increase.
Some of that is because of eligibility expansions - like for undocumented seniors - and some is because fewer people were kicked off Medi-Cal during the pandemic. Seniors make up a small percentage of the program, about 10 percent, but come with some of the highest costs. The LAO estimates seniors each cost the Medi-Cal around $15,000 per year, on average, where the rest of the population costs around $8,000.