medi-cal

SACRAMENTO — Gov. Gavin Newsom on Monday signed his final state budget as governor, a $351.7-billion spending plan that seeks to uplift the poorest Californians through a tax system reliant on the stock market gains of the wealthy.

In a video message, Newsom extolled free school meals, universal transitional kindergarten, 130,000 subsidized childcare slots and other accomplishments in his tenure at the state Capitol, a period in state history marked by a dramatic expansion of state government and over $100 billion in increased spending.

“Over the past eight years, we built great things for the people of California — some of the boldest actions any government in this country has taken in a generation,” Newsom said. “And we did this without breaking the bank. We did this by design.”

The agreement ends weeks of lobbying by outside interests and negotiations among lawmakers and the governor at the state Capitol about how to handle a surge of income tax collected on stock market gains related to artificial intelligence.

Economists have warned that the revenue bump is potentially temporary and analysts say the growth in state spending could leave California in a challenging position if the economy declines.

Assemblymember David Tangipa (R-Fresno) agreed with Democrats that the budget is “compassionate.”

“My fear is that it’s not too much of a competent budget, and the budget continues a pattern that Californians know all too well: Spend now, justify it later, and hope somebody else pays the bill,” he said during a floor debate Monday.

Here’s what you need to know about the spending plan, which takes effect July 1.

Who decides the state budget?

The simplest answer is: Democrats. California voters have elected Democrats to represent 30 of the 40 seats in the Senate and 60 seats of the 80 seats in the Assembly. The budget was passed through a majority vote in each house of the Legislature and signed by Gov. Gavin Newsom, also a Democrat.

A more complex answer is that the budget is a product of dozens of legislative hearings, millions of dollars spent on lobbying by outside interests, talks among lawmakers and the governor and ultimately subject to the same political dynamics that rule the Democratic party.

Senate President Pro Tem Monique Limón (D-Goleta) and Assembly Speaker Robert Rivas (D-Hollister), in consultation with the chairs of the budget committees, represent their Democratic caucuses and reach a final agreement on the details of the spending plan with Newsom. In reality, staff members for the three parties handle most, if not all, of the back of forth negotiations to get there.

Union leaders seeking better pay, working conditions, benefits for workers and opportunities to expand their ranks are often brought in to consult or hammer out thorny deals as business groups try to fight off more regulations, taxes and costs, and support policies that increase their financial performance.

Democrats are spending more than ever before. How is that possible?

The Legislative Analyst’s Office, the nonpartisan fiscal advisor for lawmakers, recently examined the increase in state spending since 2019-20, Newsom’s first full year in office.

Between the budget approved that year and the spending proposal Newsom unveiled in January, spending from the state’s main operating fund had grown by over $100 billion, or 70%. That was largely by a 60% increase in revenue during that time. California typically operates with a spending deficit because Democrats spend more money than the state brings in.

The LAO found that the increase in spending stemmed from the growing cost of sustaining programs and services that were already in place when Newsom took office. About 30% of the remaining spending growth was categorized as new, either by newly created programs or the expansion of existing services.

Among the report’s conclusions: California could not afford the programs that predated Newsom and the ones he and the Legislature adopted.

To balance the budget over the last few years, Newsom and lawmakers have dipped into the state’s reserves at a time when California is experiencing strong revenue growth, which the LAO has cautioned against. Democrats have also increased taxes on businesses, paid for programs out of other funds and suspended reserve deposits among other solutions.

This year, the state budget places $6.4 billion in higher than expected revenue into a temporary holding account to knock down a deficit and balance the budget through 2027-28.

Democrats are pursuing a change to the state constitution on the November ballot that would allow them to set aside more money in years of good revenue growth to prevent cuts in future downturns.

Where is the money going?

Education and Medi-Cal are the two largest costs for the state.

Medi-Cal is the state’s version of subsidized health insurance for low-income Californians and provides medical, dental and vision care for an estimated 14.5 million people, or about one-third of the state population.

The federal government pays for more than half of the cost of the program. California is expected to spend about $50 billion from the general fund next year out of a total estimated at more than $220 billion in costs shared between the state and federal government, according to the LAO. State taxes and fees on providers also help fund Medi-Cal.

Overall, Medi-Cal costs more than any other state program and takes up about 40% of total spending, including federal funds the state receives, according to the LAO.

Spending on Medi-Cal has more than doubled over the last 10 years, which the LAO attributes to an increase in costs per enrollee, more enrollees and a greater share of seniors seeking care, among other factors.

Under Newsom, California has expanded Medi-Cal, including offering coverage to include all immigrants regardless of their immigration status, which the governor said has dropped the state’s uninsured rate down to 5.9%

The cost of Medi-Cal has grown beyond what Democrats expected and resulted in Newsom suggesting spending cuts.

The final budget agreement rejects a call by Newsom to lower the asset limit to $2,000 now and instead lowers it to $21,000 in 2027-28 to be eligible for Medi-Cal. The Legislature also delayed the governor’s proposal to reduce dental coverage and shift asylum seekers and other immigrants to restricted scope Medi-Cal, according to Jason Sisney, the lead budget advisor for the Assembly who posts about the budget on Substack.

The budget includes Newsom’s proposal to shift enrollees with unsatisfactory immigration status, a term that includes undocumented immigrants and others, from managed care to fee-for-service to save costs.

Under Proposition 98, approved by voters in 1988, California has a minimum funding guarantee for schools and community colleges and dedicates roughly 40% of general fund revenue to education.

Sisney said the budget increases the Local Control Funding Formula by $2.2 billion and provides historic general fund per pupil spending of $21,148. Support for special education also grew by $1.8 billion.

The California Community Schools Partnership Program received a $1-billion boost and Democrats directed $2.8 million in additional funding to the program that provides free meals for school children.

The budget also establishes 22,770 new slots for free or reduced childcare, which Newsom had proposed decreasing.

For decades, Californians have generally said immigrants, who make up more than a quarter of the state’s population and a third of its labor force, are beneficial to the state and its economy. But budget instability and concerns about rising costs are spilling into a debate over the controversial and expensive policy of allowing low-income immigrants without legal status to receive state-funded health coverage.

Now, Democrat Xavier Becerra and Republican Steve Hilton present a stark choice to voters in the race to be the next governor at a moment when public support for the state’s generous safety net is starting to fray.

Both frame the choice as an economic one.

Becerra, former secretary of Health and Human Services under President Biden, has said it would be “foolish” to exclude the poorest immigrants from routine care and push them into expensive emergency rooms on the taxpayer’s dime. Hilton, a conservative commentator backed by President Trump, has promised to eliminate their coverage and has echoed national Republicans who have skewered California’s expansions to bolster their claims of fraud and abuse in the Medicaid program.

With voters nationwide worried about inflation and the rising cost of living, some Californians might feel less inclined to provide full healthcare coverage to those lacking legal status. What the state does next could have profound implications for its healthcare system and sprawling economy.

Over the past decade, California lawmakers used state dollars to expand Medi-Cal, offering all low-income residents comprehensive coverage regardless of immigration status. But enrollment surpassed initial projections, as did the cost. Medi-Cal coverage of immigrants without legal status costs the state roughly $10 billion a year, according to California’s nonpartisan Legislative Analyst’s Office, more than double the initial estimates.

California lawmakers and Democratic Gov. Gavin Newsom, who championed the program, have approved major rollbacks of benefits for those residents. They said the state can’t afford ballooning healthcare costs amid massive federal cuts from the GOP tax-and-spending law known as the One Big Beautiful Bill Act; the California Health and Human Services Agency projected up to 3.4 million Medi-Cal enrollees could lose coverage and the state could lose more than $30 billion a year in federal funding under the law, causing major disruptions in the safety net health program.Medi-Cal’s budget for fiscal year 2026-27 is $217 billion, and the program serves more than 14 million Californians.

Meanwhile, many legal U.S. residents and citizens have seen their health premium payments skyrocket this year after Congress let enhanced federal Affordable Care Act subsidies expire at the end of December.

As the state grappled with a deficit last year, a majority of likely voters in California said — for the first time in nearly a decade — they opposed providing health insurance to immigrants without legal status, according to a poll by the Public Policy Institute of California.

“The state faces major challenges, and healthcare is one of the major expenditures,” said Mark Baldassare, the institute’s survey director. “People have become more selective about how they want to see those limited healthcare dollars spent.”

Hilton, running on a platform of affordability and lowering taxes, has seized on the sentiment, casting health coverage for immigrants without legal status as deeply unfair and a direct threat to the state’s ability to help citizens.

“Stop taking money from California taxpayers who can barely afford their healthcare to give free healthcare to citizens of other countries who shouldn’t even be here,” Hilton said in a Facebook video the morning of the June 2 primary.

In campaign stump speeches, Hilton promised to use the savings to lower healthcare costs for other Californians without detailing how. Hilton did not respond to requests from KFF Health News for comment.

“Their messaging is very, very simple: It’s an us vs. them,” said Roger Salazar, a Democratic political consultant who represents a coalition of healthcare advocates who argue providing coverage to people who can’t afford it strengthens the workforce and, as a result, the economy. “It’s just a question of convincing the average voter that it’s much better economically.”

A son of immigrants, Becerra for decades pushed to extend safety net benefits in Congress and has made a similar pitch in his campaign for governor. He did not respond to requests for comment.

“Immigrants, whether documented or not, work hard. They pay taxes, and sometimes they get injured on the job or their children get sick,” Becerra said during a debate last month. “It would be foolish to tell a family that they don’t have access to the pediatrician or the family doc.”

Becerra, who could become California’s first elected Latino governor, objected last year when Newsom and legislative leaders decided to freeze Medi-Cal enrollment for adults without legal status, cut benefits, and impose monthly premiums.

“Stop treating coverage as a budget variable that expands in good years and contracts when revenue dips,” Becerra wrote last month in response to an Orange County Register candidate questionnaire. He has vowed to pursue new, steady revenue to fund basic services, such as by upping taxes on corporations and the wealthiest Californians.

In 2023, California was home to about 2.3 million people without legal status, representing roughly 8% of the state’s labor force, according to the Pew Research Center. And 1 in 5 California children live in a family that includes at least one member without legal status, according to the California Department of Education. Healthcare economists say giving people access to preventive healthcare saves taxpayers money in the long run by keeping the workforce healthy and relieving pressure on an overburdened system.

That, Baldassare said, wasn’t a hard argument to make during the COVID-19 pandemic, when immigrants were celebrated as essential workers and the link between individual well-being and public health was more obvious.

But Medi-Cal costs to cover roughly 1.4 million immigrants have ballooned, according to the latest estimates from the Department of Health Care Services. Because only some lawfully present immigrants are eligible for federal Medicaid benefits, states like California that cover other populations must do so exclusively with state funding.

California’s budget experts have warned that maintaining full Medi-Cal coverage for immigrants without seeking additional revenue would destabilize the state’s long-term fiscal outlook.

In a legislative hearing last year, Republican Assemblymember Carl DeMaio questioned whether California taxpayers would prioritize the expansions, saying he doubted “illegal immigrant healthcare in the general fund would be at the top of their list.”

After lawmakers approved the spending reductions, support for immigrant health coverage dropped, Baldassare said. Now lawmakers and Newsom are negotiating further cuts.

David Hayes-Bautista, who has spent his career studying the economic contributions of Latinos and immigrants, said Californians without legal status have higher labor force participation and tend to work in industries and occupations that don’t offer employer-based health insurance. As a result, many resort to Medi-Cal, saddling the state with the healthcare costs instead of employers.

“California, as a state, has the world’s fourth-largest GDP, which is true thanks to Latinos,” Hayes-Bautista, director of the Center for the Study of Latino Health and Culture at UCLA, said. Without contributions from Latinos, many without legal status, it drops to eighth place, about the size of Italy’s economy, he added.

Immigrant advocates hope to have a more vocal champion in Becerra, the favorite to become governor in a state where Democrats outnumber Republicans nearly 2 to 1.

“He will fight, he will push back, he will do all that he can,” said state Sen. María Elena Durazo, a former labor leader who has championed the immigrant healthcare expansions. “That’s the most we could expect.”

Mai-Duc writes for KFF Health News, a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF — an independent source of health policy research, polling, and journalism.