Federal Medicaid cuts do not need to put health care for poor Californians at risk.
Explanation
Congressional Republicans are looking for spending cuts to comply with the new budget blueprint, and California’s Medi-Cal program is a target. There is little doubt that the federal government can reduce its support for the state’s Medicaid version of Medicaid without putting essential healthcare at risk for poor Americans living in California.
The state’s Department of Healthcare Services has a $193 billion budget for 2025-26, of which $119 billion is expected to come from the federal government. California charges more than a sixth of all federal funds exclusively for Medicaid, despite having only 12% of its national population (based on the Congressional Budget Office estimates for national program costs in 2025).
California healthcare spending has some irregularities that have attracted the attention of the federal government.
Proactive efforts to cover illegal immigration
California is one of a handful of states that have expanded the Medicaid program to illegal immigration. While New York and Illinois restrict Medicaid expansion to certain age groups, California (along with Oregon) is available to all individuals regardless of age or legal status.
According to Calmatters, Medi-Cal has 1.6 million illegal immigrant beneficiaries, accounting for more than 10% of program enrollment. Recently, state finance officials predicted that such benefits would be well above $8.5 billion in California’s General Fund.
While state spending is not usually a federal concern, California and other states can claim the federal Medicaid program for a share of emergency and pregnancy care that provides illegal immigration.
Because most MEDI-CAL beneficiaries are in controlled care arrangements, California typically does not charge the federal government for each emergency or pregnancy care encounter. Instead, they charge federal Medicaid for the percentage of load payments they pay to managed care providers (i.e., premiums). However, in 2024, California was found to overcharge the federal government for a surrender payment that was made for $52.7 million on behalf of non-citizens, and was asked to repay it.
Use of heavy emergency rooms by the homeless
California has an unbalanced share of homeless individuals, many of whom suffer from substance abuse issues. Some of these drug users frequently visit emergency rooms to deal with the effects of overdose.
One study quarantined a considerable group of “frequent” ER users in San Francisco. San Francisco has made 4-17 visits a year. Both groups were disproportionately homeless.
Homeless individuals may not be participating in Medi-Cal when they appear in the ER, but in California, individuals will be able to enroll in the program up to three months after receiving medical services, provided they meet eligibility requirements when providing services.
Homeless Medi-Cal beneficiaries made 419,000 emergency room visits during the 2021-2022 fiscal year, according to the latest state data available.
Increased profits for the elderly
Medicaid covers nursing home care or home-based alternatives for poor seniors. To determine whether a senior is eligible for Medicaid benefits, states typically apply both income tests and asset tests.
Seniors may lack the income to pay for nurses’ stays, but assume that future beneficiaries will sell their investments before they resort to government benefits. However, since California eliminated asset testing in 2024, wealthy elderly people who need skilled nursing can bequeathed millions of people to their heirs, rather than using it to pay a sudden nurse’s fee.
Naturally, advanced registrations for Medi-Cal are rising rapidly. State legislative analysts estimate that 165,000 seniors are enrolled in MEDI-CAL due to increased eligibility. Each beneficiary costs over $15,000 a year, on average, which means that it is divided into state and federal governments and costs nearly $2.5 billion a year.
Dependency on provider tax
Like most states, California spends money on Medicaid services and taxes healthcare providers in the process to raise federal matching funds. However, the use of California provider taxes has been particularly aggressive.
One particularly positive practice is taxing government-owned MEDI-CAL managed care providers, such as the LA Care Health Plan, which covers 2.3 million beneficiaries. Agency is usually tax exempt, but California is actively targeted to maximize federal funding.
While the Biden-era Department of Health and Human Services (HHS) raised concerns about the state’s managed care provider tax, California was able to increase its taxes in 2024 to acquire a budget hole.
Ambulance payment
California has made a special arrangement with the HHS to pay additional fees to local fire stations to provide emergency ambulance transport to medical beneficiaries. This supplementary fee has recently been set at $1,050 per ride, adding to the $118 base rate paid to both private and public ambulance providers.
As Ryan Ellis, president of the Center for Free Economics and Senior Tax Advisor at the Family Business Federation, recently stated in a Washington Times opinion piece, these massive supplementary costs help California fire departments pay uniform personnel salaries of over $200,000 a year.
Using funds for non-healthcare purposes
California also took the lead in the Biden-era initiative, expanding Medicaid to cover what is called “social determinants of health.” This is a non-medical factor that affects health outcomes.
The federal exemption allows Medi-Cal to pay rent for up to six months to beneficiaries at homelessness, at risk of becoming homeless, or moving out of facility settings, covering the costs of sports goods, music, art lessons, and therapeutic summer camps for medical children. The state also began expanding Medi-Cal to “justice-related individuals” who serve prisoners up to 90 days prior to their release.
Conclusion
California has found various ways to gain increased federal Medicaid funding with benefits for illegal immigrants, medical and non-healthcare service providers, firefighters and even wealthy elderly heirs.
The six issues mentioned above may be just a subset of the technologies employed by California officials and bureaucrats. Most details of MEDI-CAL spending are not available even on the state’s financial transparency platform, making it difficult for independent researchers to identify many of the irregularities in this huge program.
State-level efforts for government efficiency could make more complexity and unnecessary spending in Medi-Cal more. But even with the information we already have, we can be confident that federal Medicaid reductions do not need to endanger the health care of Americans in the limited means of living in Golden State.
The views expressed in this article are the views of the authors and do not necessarily reflect those of the epoch era.
