How Potential Medicaid Cuts Could Play Out in California

In 2017, the Republicans who controlled Congress tried mightily to slash federal spending on Medicaid, the government-funded health program covering low-income families and individuals.

California, like other states, depends heavily on federal dollars to provide care for its poorest residents. Analyses at the time showed the GOP’s proposals would cut Medicaid funds flowing from Washington by tens of billions of dollars, perhaps even more, forcing state officials to rethink the scope of Medi-Cal.

But the GOP efforts ended in failure — iconically crystallized by Arizona Republican Sen. John McCain, sick with terminal brain cancer, issuing his decisive early-morning thumbs-down.

More than seven years later, here we go again.

With Donald Trump preparing to reenter the White House, bolstered once more by Republican majorities in both houses of Congress, expectations are high that the GOP will quickly resurrect its long-desired goal of cutting Medicaid.

Republicans want to finance large tax cuts, and the GOP platform under Trump pledges not to touch Social Security or Medicare. To be sure, that’s not set in stone. But for now, as my KFF colleagues have noted, Medicaid looks an awful lot like low-hanging fruit. (KFF is a health information nonprofit that includes KFF Health News.)

Health officials in California and across the nation are on edge about the possibility of large-scale Medicaid cuts being enacted as soon as next year. Such cuts would have an outsize impact in the Golden State, whose 14.7 million Medi-Cal enrollees exceed the entire populations of all but three other U.S. states. Medi-Cal provides health coverage for over 40% of the state’s children and pays for nearly 40% of births. It is a crucial source of funding for safety net hospitals and community clinics.

And over 60% of its $161 billion budget this year comes by way of Washington.

The potential for big federal cuts to Medicaid may have been a factor in Democratic Gov. Gavin Newsom’s decision to call a special session of the state legislature this week.

California could seek to offset a sharp drop in federal dollars with higher taxes or cuts to other state programs. But both those options could be politically untenable. That’s why many health experts think leaders in Sacramento would almost certainly have to consider shrinking Medi-Cal.

That could mean cutting any number of optional benefits, such as dental services, optometry, and physical therapy. It might also mean rolling back some of the ambitious expansion Medi-Cal has undertaken in recent years. That could include some aspects of California Advancing and Innovating Medi-Cal, a $12 billion program of services that address patients’ social and economic needs in addition to their medical ones.

Some observers fear federal cuts could affect the approximately 1.5 million immigrants living in the U.S. without authorization who are enrolled in Medi-Cal at an annual cost of over $6 billion, nearly all of it funded by the state. But others say a more likely route would be to reduce payments across the board to the managed care plans that cover 94% of Medi-Cal enrollees, rather than target any specific groups of people.

“Medicaid is on the chopping block, and I don’t think that’s speculation,” says Gerald Kominski, a senior fellow at the UCLA Center for Health Policy Research. “It is widely viewed by potential members of Trump’s administration as a program that is too broad and needs to be brought under control.”

Whether they can succeed this time remains to be seen. But more on that later.

People who have followed previous GOP efforts to downsize Medicaid say a variety of previously attempted methods might be back on the table this time. They could include outright caps on federal Medicaid dollars; elimination of the core Affordable Care Act policy under which the feds pay 90% of the cost of expanding coverage to a wider swath of low-income adults; a work requirement, which could depress enrollment; and rule changes intended to make it harder for states to draw federal Medicaid dollars through the use of taxes on health care insurers known as MCOs.

The first Trump administration proposed but later dropped changes to the rules governing such taxes. If similar changes were adopted this time around, they could cause financial headaches in California, which has frequently used MCO taxes to offset Medi-Cal spending from state coffers.

Proposition 35, recently passed by California voters, could also be at risk. The initiative calls for the MCO tax to become a permanent fixture in 2027, pending federal approval, with the goal of financing billions of dollars in new Medi-Cal spending, primarily to increase funding for doctors and other providers. A federal rule change could upend those intentions.

Termination of the federal government’s 90% coverage of the ACA Medicaid expansion would put a gaping hole in the Medi-Cal budget. Medi-Cal spent over $34 billion in fiscal year 2023 covering the roughly 5 million people who enrolled as a result of the expansion, and nearly $31 billion of that amount was paid by the federal government.

If the feds’ share dropped back to its regular Medi-Cal rate of 50%, California would have to pony up nearly $14 billion more to keep the expansion enrollees covered — and that’s just for a year.

A more ambitious GOP push, including both spending caps and a rollback of federal support for the Medicaid expansion, could really send California officials scrambling.

In 2017, the state’s Department of Health Care Services issued an analysis showing that a legislative proposal filed by a group of Republican U.S. senators to cap Medicaid spending and end enhanced funding for the ACA expansion, along with some other cuts, would result in nearly $139 billion of lost federal funding to California from 2020 to 2027.

“There are almost limitless changes state leaders could make to Medi-Cal if they are forced to do that,” says David Kane, a senior attorney at the Western Center on Law & Poverty. “And we fear that burden will almost certainly hurt poor people and immigrants the most.”

But big Medicaid cuts are not a foregone conclusion. After all, when Trump was in the White House in 2017, Republicans also had House and Senate majorities and still did not achieve their goal. The political stars could be aligning differently this time, but the GOP has only a razor-thin majority in the House.

A decade into the ACA’s Medicaid expansion, some 21 million people across the country have coverage through it, embedding the program more deeply in the nation’s health care landscape. According to a 2023 study from Georgetown University, Medicaid and the related Children’s Health Insurance Program cover a higher proportion of the population in rural counties than in urban ones. And as we know, rural America leans strongly Republican.

Will GOP members of Congress, faced with a vote on cutting Medicaid, buck their own constituents?

Edwin Park, one of the authors of that Georgetown study, thinks there’s a chance big cuts can be averted. “Large numbers of Americans are either on Medicaid, have family members on Medicaid, or know somebody on Medicaid,” says Park, a research professor at Georgetown’s McCourt School of Public Policy. “Hopefully its popularity and its importance will win the day.”