California Gov. Gavin Newsom slammed congressional proposals that would, among other things, cut Medicaid funding to states that provide taxpayer-financed non-emergency health care to illegal immigrants.
The governor was also critical of congressional proposals to require able-bodied Medicaid recipients to work, volunteer or be in school part-time, and limit states’ abilities to tax Medicaid providers higher to engineer increased federal Medicaid funding.
A cumulative analysis from The Center Square has found that these three proposals could cost the state nearly $40 billion per year in lost state and federal revenue.
“If Republicans move this extreme MAGA proposal forward, millions will lose coverage, hospitals will close, and safety nets could collapse under the weight,” said Newsom in a statement.
Newsom’s office says the proposal to cut the Affordable Care Act Medi-Cal expansion federal match rate from 90% to 80% for states that enroll illegal immigrants in Medicaid for non-emergency care would cost $4.4 billion per year. Emergency care would remain unaffected.
Newsom’s updated May budget includes $12.1 billion for illegal immigrant Medi-Cal, for approximately for 1.6 million individuals— a sum that slightly exceeds the state’s $11.9 billion projected budget shortfall. If Congress adopts this proposal, the state’s cost for allowing illegal immigrants to enroll in Medi-Cal could rise to $16.5 billion this year.
Newsom’s office also said the proposed 2029 requirement that able-bodied working-age adults on Medicaid work, volunteer or go to school at least 80 hours per month or be “kicked off their Medi-Cal … could lead to a loss of up to $22.3 billion in federal funding and cause up to 3 million people in California to lose coverage.”
This data suggests one in 13 Californians, including children and the elderly, are able-bodied adults enrolled in Medi-Cal and not engaged in half-time education, volunteering or work.
While Newsom’s office did not specify exact costs, the congressional proposal is to require that taxes on managed care provider organizations be based uniformly on the number of individuals whose care they manage. That would be instead of California’s practice of imposing a higher tax on providers for their Medicaid enrollees.
California voters passed Proposition 35 last year, which the state-funded Legislative Analyst’s Office says will generates about $7 billion to $8 billion per year via a permanent tax on managed care provider organizations beginning in 2027. Rules outline how the funds are broadly spent within Medi-Cal, and Prop. 35 requires compliance with federal rules on MCPO taxes.
The LAO estimated the tax would generate about $4 billion more in Medi-Cal funding each year after accounting for transfers within the program due to the tax, with half the funding coming from more federal reimbursement due to higher costs imposed by the tax. The LAO said it found “by charging the health plan tax, the state can receive more federal funding.”
The Trump administration’s Centers for Medicare & Medicaid Services has proposed a rule titled “Preserving Medicaid Funding for Vulnerable Populations – Closing a Health Care-Related Tax Loophole,” which closely mirrors the congressional proposal.
CMMS says its proposed rule would “end states’ ability to exploit a health care-related tax loophole currently used by seven states to generate billions in federal Medicaid payments — without contributing their fair share or expanding care for Medicaid enrollees.” CMMS outlines how “after imposing the tax disproportionately on Medicaid plans or providers, the states reimburse them with federal funds, while avoiding any state financial cost.”
CMMS says this allows “states to use the surplus for other purposes — including the expansion of healthcare coverage for illegal immigrants,” which “effectively means federal money is financing these other interests, instead of enhancing the state Medicaid program.”
The congressional proposal would solidify this rule change by requiring the aforementioned uniformity, and thus rendering Prop. 35 noncompliant and depriving California of the estimated $7 billion to $8 billion on MCPO tax revenue, and additional $2 billion per year or so in estimated higher federal Medicaid funding.
Should the congressional proposals pass, the state could effectively lose a combined $36.7 billion per year in federal and state revenues. This would necessitate some combination of substantial budget cuts elsewhere, or higher taxes to maintain Medi-Cal services and obligations at current levels.
In late 2024, the LAO already anticipated budget deficits in the coming years rising to $30 billion per year, saying the state has “no capacity” for new spending, suggesting the state has little leeway to make such changes.
