Federal cuts and reversals upend California health care in 2025

After a decade of expanding health coverage and safety net programs, the Golden State took a sharp detour in 2025. As federal funding reductions and policy changes rippled through the health care system, California confronted service cuts, coverage losses and growing uncertainty.

During the summer, a congressionally approved spending plan slashed nearly a trillion dollars from the Medicaid program over the next decade. Funding cuts and new rules — such as work requirements — are expected to push 3.4 million Californians off their Medicaid coverage as changes take effect.

In Washington, a dispute over whether to renew enhanced premium subsidies that help keep Affordable Care Act marketplace insurance plans affordable prompted the longest shutdown in history. Absent federal action, hundreds of thousands of people could be priced out of Covered California insurance in 2026. More than 2,300 Dreamers in California have already lost access to the state marketplace: The Trump administration overturned a rule that had allowed undocumented people brought to the country as children to buy subsidized health insurance.

Federal immigration raids prompted undocumented people to skip care, and families reported worsening mental health, and federal anti-trans policies pushed providers to scale back on gender-affirming care.

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Shifting federal policy forced the state the state to inject millions into Planned Parenthood to try to keep clinics afloat. Anticipating more restrictive federal immunization rules under U.S. Health Secretary Robert F. Kennedy, California advanced its own vaccine guidelines.

Federal changes weren’t the only reversal. State budget constraints and overspending in the Medi-Cal program led California to freeze new enrollment for undocumented people and cut some costly benefits, such as weight loss drugs.

On affordability, Gov. Newsom delivered on his promise to cut down the cost of insulin. In 2026, diabetics will be able to purchase long-acting insulin pens at pharmacies for $11 a pen. After CalMatters shed a light on disappearing birth centers, state lawmakers approved a new law improving access in underserved areas, streamlining licensure requirements so that birth centers can more easily contract with Medicaid.

2026 outlook

The Legislative Analyst’s Office projects that Medi-Cal spending will continue to grow. Paired with the uncertainty of federal funding cuts, lawmakers may again seek ways to control costs and weigh priorities.

As federal spending cuts phase in, they’ll have implications for hospitals and other providers, such as an uptick in uncompensated care.

California has been distributing $6.4 billion from a voter-approved mental health bond. Starting July 1, the Behavioral Health Services Act will also require counties to spend revenue received from a 1% tax on incomes over $1 million on services and housing for people who are homeless.