State Health Care Costs Keep Mounting as Huge House GOP Medicaid Cuts Loom

California's Medi-Cal shortfall hits $6.2 billion as Newsom administration blames "unprecedented" cost increases that "happened all at once"

By Ana B. Ibarra CalMatters

The hole in California’s Medi-Cal budget seems to be bigger than what state officials forecast just weeks ago.

California health care officials told the Legislature on March 17 that the state will need another $2.8 billion to be able to pay Medi-Cal providers through the end of the fiscal year.

That’s on top of a $3.4 billion loan that the administration told lawmakers last week it needed to make “critical” payments for Medi-Cal, the state-federal health insurance program for low-income people.

Combined, that’s $6.2 billion in spending above what was projected in the budget Gov. Gavin Newsom signed last summer. Almost 15 million Californians have health care coverage through Medi-Cal, also known as Medicaid.

“With the loan and these additional funds, the administration anticipates being able to manage expenditures for the remainder of the current year,” said Michelle Bass, director of the Department of Health Care Services, which oversees Medi-Cal.

Bass told legislators in a budget hearing that several factors are contributing to the higher-than-anticipated spending, including an increase in pharmacy costs, but also more growth in enrollment than the state projected.

For one, the state underestimated the number of immigrants without legal status who would sign up to the program in the last year.

Bass said the department had about one month of data regarding new policies before it had to make projections for the budget Newsom signed.

“These changes were unprecedented, and all happened at once,” Bass said.

The developments include:

Immigrants. More immigrants without legal status enrolled in the program than expected. Over the last 10 years, California has expanded Medi-Cal coverage to undocumented people in different age groups. The final group, adults ages 26 to 49, were allowed to apply for Medi-Cal starting Jan. 1, 2024. In January, Bass’ department estimated California would be spending $2.7 billion beyond what it budgeted due to the cost of covering care and prescriptions for newly enrolled immigrants. According to updated estimates from the administration, it costs the state about $8.5 billion from the general fund to cover immigrants who are in the country without legal authorization.

Seniors. Also starting on Jan. 1, 2024, more seniors were able to sign up for Medi-Cal after the state stopped counting certain assets, such as cars, homes and savings when considering someone’s eligibility. Now, like everyone else, seniors’ eligibility is based on their income.

Pandemic. The program has seen higher overall enrollment due to pandemic-related flexibilities. California’s overall Medi-Cal population ballooned during the COVID-19 pandemic when the federal government temporarily suspended income eligibility checks to keep people insured during the national emergency. The number of people who dropped off the program after the pandemic was smaller than the department assumed.

Bass said other states are also going over budget, noting health care spending in general is increasing across the U.S.

Dem victims of success. Going over budget has vexed some state Republicans who say the governor and Democrats over-promised when they decided to expand Medi-Cal services to all low-income immigrants. Democrats have come out in defense of the expansion and the state’s efforts to keep people covered during the pandemic.

“The things that you’re talking about means that we have been successful,” Assemblymember Pilar Schiavo, a Santa Clarita Democrat, told Bass during last week’s hearing. “We have been successful about keeping people covered, about making sure that they have access to health care.”

Schiavo added that California’s current shortfall is solvable, but less so are the potential cuts to Medicaid that Congress is currently weighing.

House Republicans recently voted to advance a proposal that could result in cuts of $880 billion to a group of programs, largely Medicaid, over the next 10 years. According to some estimates, that could translate into annual losses of $10 billion to $20 billion a year for California, an amount that state officials have said the state would not be able to backfill.

Ana B. Ibarra covers health care for CalMatters. You can subscribe to CalMatters newsletters here.

Image: Gavin Newsom (CalMatters)