State Budget Update

Read CPEHN’s analysis of the 2025-2026 State Budget. From January to July, the Governor, Legislature, advocates, and community partners debated how California’s historic surplus should be used.

Budget Protects Critical Health Investments & California’s Values in Face of Unprecedented Federal Threats

With core safety net programs largely spared from cuts, CA leaders can do more to advance health equity in final budget

SACRAMENTO, CA – The California Pan-Ethnic Health Network (CPEHN) applauded Gov. Newsom’s budget proposal to maintain critical investments in the state’s health care safety net at a time when the incoming Trump administration threatens care for 15 million Californians, the majority children and people of color. 

CPEHN Executive Director Kiran Savage-Sangwan said: 

“Gov. Newsom’s budget is a strong statement that California will stand by our values and our commitment to ensure every person has the opportunity to be healthy. Our state’s leadership is vital now as the Trump Administration aims to decimate the Medi-Cal program one in three Californians count on for their care. The deep cuts in Medicaid and Affordable Care Act funding Trump’s allies demand to protect billionaire tax cuts would jeopardize access to care and worsen health disparities across the state. The devastating impacts of the Trump-backed proposals would not spare the constituents of GOP congressional districts, and CPEHN and our allies will work hard to ensure these representatives understand the consequences for our communities’ health. 

“The Governor’s budget makes a strong commitment to Medi-Cal for the 2025-26 fiscal year; the Legislature can make it even stronger by restoring the investments in community health workers lawmakers prioritized last year, but were unwound by the passage of Prop. 35. 

“We are encouraged to see Future of Public Health funding protected; the Avian Flu harming agricultural workers in the Central Valley and climate-change fueled fires devastating our state today make evident the need to stay prepared for threats to communities’ health. 

“California can well afford to continue our progress on health equity. State revenues are stronger today because the wealthiest Californians are doing better than ever, a clear sign that they can contribute more to ensuring no one goes without the care they need to thrive.” 

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Governor’s May Revise Balances the Budget on the Backs of Immigrant Communities &

Fails to Address Real Cost Drivers Including Corporate Greed

On Wednesday May 14th, Governor Gavin Newsom released his FY 2025-26 revised budget plan. Citing an $11.9 billion deficit, the $200.6 billion spending plan balances the budget on the backs of the state’s low-income, undocumented residents; while failing to address the real cause of rising health care costs: corporate greed at every level of health care, from insurance companies to hospital care to prescription medicine.

In a year of looming federal threats to Medi-Cal, the budget fails to propose bold revenue solutions relying instead on a combination of deep cuts and borrowing. Efforts to backfill cuts to Medi-Cal were made more complicated this year by Prop. 35’s rigid formulas, resulting in the loss of $2.2 billion in potential funds that could have been used to backfill California’s vital safety-net program.

The May Revision proposal includes a cruel and short-sighted mandatory Medi-Cal enrollment freeze for undocumented immigrants age 19 and older and imposes a $100 monthly health care premium for adults age 19 and older with unsatisfactory immigration status. Imposing premiums on a family of four making $32,500 is a cut of 7.5% to their income; and immigrants would be required to pay or lose their coverage. The practical effect is to lock them out of health care for a savings of approximately $5 billion annually.

The budget further restricts access to In-Home Supportive Services (IHSS) for undocumented immigrants, and long-term care and dental for immigrants without satisfactory status, a category that includes lawfully present immigrants. The cumulative effects of these cuts and reductions in service, will result in a 20% decline in Medi-Cal enrollment for California’s immigrant communities whose taxes and labor have helped to fuel California’s economic engine making our state the fourth largest economy in the world.

The revised budget also targets seniors and disabled by proposing to reinstate the Medi-Cal asset limit ($2,000 for a household and $3,000 per couple). As a result, older adults and people with disabilities will need to prove their assets and bank accounts every year, which will lead to widespread health insurance terminations for paperwork reasons alone.

The Department estimates that 112,000 individuals will lose coverage by June 2027, and caps In-Home Supportive Services overtime and travel hours at 50 hours which could make it harder for some IHSS to stay in their homes, resulting in more costly institutional care.

CPEHN joins other advocates in calling on California’s Legislators to say “No” to cutting coverage and benefits in Medi-Cal.

CPEHN May Revision Detailed Analysis

Proposed Reductions—$5 billion savings in 2025-26, growing to $14.8 billion by 2028-29

• Freezes Enrollment for Full-Scope Medi-Cal Expansion Adults, 19 and Older effective January 1, 2026 (Reduction of $86.5 million in 2025-26, growing to $3.3 billion in 2028-29 due to individuals losing access to coverage) who do not have satisfactory immigration status or are unable to establish satisfactory immigration status, excluding lawfully present immigrants under the five year bar and individuals claiming Permanently Residing Under Color of Law (PRUCOL) and pregnant individuals Medi-Cal is a lifeline for the approximately 1.6 million Californians enrolled in the state-only program. The freeze would apply to most new enrollments after January 2026 with the exception of children. Anyone enrolling after 2026 would no longer be able to access routine doctor’s visits, prescription drugs and In-Home Supportive Services (IHSS) which are critical services that allow disabled children, adults and seniors to stay in their homes.
• Imposes a $100 Monthly Health Care Premium for Adults, 19 and Older with Unsatisfactory Immigration Status effective January 1, 2027 (cost $30 million to implement in 2025-26, reduction of $2.1 billion in 2028-29 due to individuals losing coverage).Imposing premiums on a family of four making $32,500 is a cut of 7.5% to their income; immigrants would be required to pay or lose their coverage. The practical effect is to lock individuals and families out of health care.
• Eliminates IHSS Coverage For Undocumented Adults Ages 19 and Older effecting July 1, 2025 through a reduction of $158.8M general fund in FY25-26 and ongoing to eliminate In-Home Support Services benefits for undocumented enrollees. This reduction will cause beneficiaries to loose their benefits in just a few weeks, forcing families to leave the workforce to care for loved ones or lead to more expensive institutionalization.
• Eliminates Long-Term Care for Individuals with Unsatisfactory Immigration Status effective January 1, 2026 (Reduction of $333.3 million in 2025-26, growing to $800 million in 2026-27): Terminating Long-Term Care for immigrant families means denying dignity and support to elderly immigrants who worked their whole lives in backbreaking agricultural, cleaning and food service jobs that benefit our state.
• Eliminates Dental Benefits for Adults 19 and Older with Unsatisfactory Immigration Status effective July 1, 2026 (Reduction of $308 million in 2026-27 and $336 million in 2028-29 and ongoing): When California eliminated dental benefits in Medi-Cal during the Great Recession, community members reported that their families skipped meals to pay for dental care. Seniors had to scrape together what little cash they had for poorly made dentures that gave them mouth sores.
• Reinstates the Medi-Cal asset limit ($2,000 for a household and $3,000 per couple) – a move that will lead to widespread health insurance terminations for paperwork issues alone, as older adults and people with disabilities will need to prove their assets and bank accounts every year. The Department estimates that 112,000 individuals will lose coverage by June 2027. This proposal is projected to save $94 million in 2025-26, growing to $791 million in 2028-29 as a result of exceeding the limit or due to administrative/procedural errors. 
• Eliminates of Prospective Payment System (PPS) rates to Federally Qualified Health Center and Rural Health Clinics for Individuals with Unsatisfactory Immigration Status (Reduction of $452.5 million in 2025-26, growing to $1.1 billion in 2026-27): In California, FQHCs, are paid a single, bundled payment for each qualifying patient visit, instead of being paid a fee for each service provided. The Governor’s proposal would eliminate state reimbursement to these clinics for physical, behavioral and dental care, threatening health outcomes for the over 5.3 million patients served by clinics in the state.
• Caps In-Home Supportive Services Overtime and Travel Hours at 50 hours(Reduction of $707.5 million General Fund and ongoing to cap IHSS beginning in 2025-26) – The budget would reduce IHSS hours from 66 to 50 every two weeks a move that will result in a significant loss of income for over 310,000 IHSS providers while placing an undue burden on families to provide specialized care at home. This proposal will result in individuals ending up in emergency rooms or institutional settings.
• Ends coverage for GLP-1 drugs (e.g. Ozempic and Wegovy) effective January 2026 (Reduction of $85 million in 2025-26, growing to $680 million by 2028-29 and ongoing)GLP-1 medications, originally developed to treat diabetes, have gained popularity as an effective treatment for weight loss and the management of obesity-related conditions. Eliminating access to these drugs, while a cost-cutting measure, fails to take into account the long-term potential of these drugs in helping to lower rates of heart disease and other chronic conditions by lowering obesity rates.
• Eliminates the Workforce and Quality Incentive Program (QIP) (Reduction of $168.2 million in 2025-26 and $140 million ongoing) a performance-based directed payment program that incentivizes Skilled Nursing Facilities (SNFs) to improve quality of care, advance equity in healthcare outcomes, and invest in their workforce. Additionally, the Governor proposes to suspend the requirement to maintain a backup power system for no fewer than 96 hours (see further details below).
• Eliminates Acupuncture as a Medi-Cal Benefit (A reduction of $5.4 million in 2025-26 and $13.1 million ongoing) – Acupuncture is a vital part of healthcare for many Medi-Cal beneficiaries, providing relief from chronic pain, mental health conditions and other ailments. Removing this optional benefit could lead to increased suffering and reliance on more invasive or addictive treatments like opioids.

Other changes:

• Adds Additional Limits on Access to Medi-Cal prescription drugs by:
  • Imposing utilization management and prior authorization for the continuation of drug therapy effective January 1, 2026. Under these proposals, California would expand prior authorization protocols across more drug classes and impose prior authorization requirements for certain drugs even after they’re removed from the contracted drug list if they had been previously approved. These policies will increase administrative burden for providers and patients, result in delayed access to treatment and/or disruption of drug treatment therapy for people with chronic conditions who rely on their medications to manage their conditions.
  • Eliminating over-the-counter drug coverage which will make it harder for Medi-Cal beneficiaries to access certain classes of drugs such as COVID-19 antigen testes, vitamins, antihistamines and eye drops.
• Imposes Prior authorization requirements for hospice services – a proposal that will likely cause unnecessary delays and hardships for patients in critical need of end-of-life care and support. This proposal is projected to save $25 million in 2025-26 and $50 million ongoing.
• Eliminates Proposition 56 supplemental payments (Reduction of $504 million in 2025-26 and $550 million going) which provides additional funding for providers who deliver dental care, family planning and women’s health services. Despite declining Prop 56 (tobacco tax) revenues, the state has previously backfilled funds for these providers using General Fund dollars. Elimination of these funds will likely result in fewer clinics accepting Medi-Cal patients, exacerbating disparities in access to dental care, reproductive and preventive care. Additionally, the loss of family planning and women’s health funding is not proposed to be backfilled by Prop 35 funds in 2025 and 2026, and Prop 35 investments for dental providers would not take effect until after 2027, subject to federal approval of a new MCO tax (see Prop 35 analysis below).
• Suspends the Proposition 56 Loan Repayment Program (Reduction of $26 million in 2025-26) – a program designed to help physicians and dentists repay their student loans in exchange for providing services to Medi-Cal beneficiaries. Suspension of this program will likely result in decreased access to care in underserved areas, exacerbating disparities for in health outcomes for those communities.
• Increases the Medi-Cal Minimum Medical Loss Ratio for Managed Care Plans (MCPs) commencing January 1, 2026 ($200 million in 2028-29 and ongoing)if approved, this commonsense plan would require MCPs to spend a larger portion of their premium dollars collected on medical care and quality improvement activities, rather than administrative costs and profits for Managed Care Organizations (MCOs). Most MCPs in California reported growth in revenue, medical expenses, and net income during the first quarter of 2024 according to a report by the Department of Managed Health Care (DMHC). These increases were primarily driven by higher enrollment and adjustments in fee schedules resulting from the MCO tax and Targeted Rate Increases (TRI). Local health plans generally maintain higher reserves which are used to cover any needed capital expenditures or future economic downturns, than for-profit corporations which distribute dividends to their parent companies and share holders.

Managed Care Organization (MCO) Tax and Proposition 35

• Use of MCO Tax Revenue to Backfill Medi-Cal Costs: The Administration proposes to use revenues from both the amended 2024 MCO tax (not subject to Prop 35) and the $2 billion reserved under Prop 35 for calendar years 2025 and 2026 to support the existing Medi-Cal program—totaling $9 billion in 2024-25, $4.2 billion in 2025-26, and $2.8 billion in 2026-27. These allocations free up General Fund dollars that would otherwise be used to pay for baseline Medi-Cal costs.
• Proposition 35 Implementation Continues in 2025: The May Revision reflects $804 million in 2024-25, $2.8 billion in 2025-26, and $2.4 billion in 2026-27 for provider rate increases and investments required by Prop 35. The Proposition 35 Stakeholder Advisory Committee met on April 14 and May 19, 2025, to review the Department of Health Care Services’ (DHCS) proposed MCO tax spending plan for 2025 and 2026. While the Committee provides input, DHCS retains final authority over implementation. These allocations are proposed to fund:
  • 2024 Targeted Rate Increases Continue for Primary Care, Obstetrics, and Non-Specialty Mental Health: The May Revision maintains the MCO tax-funded Targeted Rate Increases enacted in the 2023–24 budget, which set rates at 87.5% of Medicare for primary care, obstetrics, and non-specialty mental health services. These increases, which remain in effect following the passage of Prop 35, include some services provided by specialty and emergency physicians. The cost to sustain these rates is $356 million annually and is spread across the primary care, specialty care, and emergency department allocations established by Prop 35.
  • Uniform Rate Increases and Other Investments: At least $1 billion in 2025 and $1.73 billion in 2026 are directed toward new investments, including required rate increases under California’s BH-CONNECT waiver. The BH-CONNECT rate increases will be implemented as uniform dollar add-ons for primary care, specialty care, and emergency physician services. However, this approach limits the state’s ability to target investments toward providers serving the highest share of Medi-Cal patients or communities facing the most severe health disparities. Additional proposed investments include increased state-directed payments for public hospitals, private hospitals, and community clinics; workforce investments including midwifery education; and rate increases for emergency ground transportation. Many of these investments, such as provider directed payments, will require federal approval.
  • $1.6 Billion of Prop 35 Funding to Pay for Increases in Managed Care Capitation Rates:
    In addition to maintaining 2024 rate increases, the Administration proposes to use $1.6 billion from Prop 35 allocations—outside of the $2 billion general Medi-Cal support line—for increases in managed care capitation rates in 2025 and 2026. DHCS pays capitation rates to Medi-Cal managed care plans for every enrolled member per month, and capitation rates are adjusted annually because of projected changes to costs and utilization. The proposed base rate capitation increases are tied to expanded covered services, increased utilization of services, workforce costs, and changes in service acuity. While these cost drivers are legitimate, there is no guarantee these dollars will be passed on to providers nor that these payments will result in improved access or quality for Medi-Cal patients. We question the proposal to use MCO tax funds to increase payments for managed care plans while at the same time cutting vital health care benefits and services for our most vulnerable Californians.

• Federal Risk to the Current and Future MCO Tax:
  Two major federal risks could jeopardize the state’s current MCO tax and continuation of the MCO tax beyond 2026:
  • A congressional budget reconciliation bill would prohibit California’s current MCO tax structure. If the current iteration of the budget reconciliation bill were to pass, the federal government could immediately revoke approval of California’s MCO tax.
  • A new CMS rule, while on a longer timeline, would also restrict states’ ability to impose provider-based taxes like California’s.
  • Because Proposition 35 restricts the state’s ability to conform with federal changes, California must proactively plan for a significant loss of MCO tax revenue beginning in 2027.

Reproductive Justice / Family Health

• Reduction in Funds to the Emergency Child Care Bridge Program: Proposes reducing the program by $42.7 million in General funds for 2025-26 and beyond, a 45.6% cut, keeping $51 million in annual ongoing funding. The Emergency Child Care Bridge Program, implemented January 2018, helps place children in foster care into stable child care settings by supporting foster families, relatives, and parenting youth in accessing care upon placement. The program has three main components: time-limited child care vouchers to support immediate placement of foster children, child care navigators who help families find and access appropriate care, and trauma-informed training and coaching for child care providers to better support children who have experienced trauma. These services work together to promote stable placements and improve care quality for children in the child welfare system. The funding reduction could weaken the program’s ability to effectively support foster families, especially as it continues to expand and demonstrate positive outcomes. Given that children of color are disproportionately represented in the foster care system, these cuts could have a deeper and more harmful impact on already vulnerable communities.
• Reducing Funding for the Family Urgency Response System (FURS) Program: Decreasing funding by $13 million General Funds for 2025-26 and ongoing, while maintain $17 million in ongoing General Funds. FURS is a program that provides 24/7, trauma-informed support to current and former foster youth and their caregivers through a statewide hotline and county-based mobile response teams, as well as in-home support services. The decrease in funding could significantly impact the availability of immediate crisis support for foster youth and their caregivers, potentially affecting placement stability and well-being. Since children of color are overrepresented in the foster care system, these funding cuts could disproportionately harm communities that are already facing significant challenges.

California’s Health Care Workforce:

• Fails to sustain the Community Health Workers/Promotoras/Represenative (CHW/P/R) Medi-Cal reimbursement rate increases previously included in the FY 2024-2025 state budget: California’s FY 2024-25 state budget had incorporated a 22.2% increase in reimbursement rates for CHW/P/R services, raising the rate from $26.66 to $32.58 per half-hour visit. This rate increase was slated to go into effect starting January 1, 2025 and was a vital step toward ensuring fair compensation, as well as supporting the long-term sustainability of the CHW/P/R workforce. However, trigger language in the budget eliminated this planned rate increase following the passage of Proposition 35. As a result, CHW/P/Rs will not receive adequate Medi-Cal reimbursement funds. Without proper compensation, these essential healthcare workers face financial instability, jeopardizing the sustainability of their roles. CHW/P/Rs are uniquely positioned to serve underserved populations and improve health outcomes. To advance health equity, it is critical to invest in and adequately support the CHW/P/R workforce.

• Implements the Behavioral Health (BH) Workforce Initiative at HCAI in January 2026: A total of $1.9 billion in funds ($143 million Behavioral Health Services Fund, $808 million Designated State Health Program Funding, and $950 million federal funds) to support the Behavioral Health Workforce Initiative, which is part of the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT). BH-CONNECT is a 5 year program that started January 1, 2025 and partners with county behavioral health plans to expand community-based services to ensure equitable behavioral health care for Medi-Cal members with significant needs. The BH Workforce Initiative will focus on training, recruitment, and retention of behavioral health providers and provide 5 statewide workforce programs over five years. In California, mental health access issues disproportionately affect communities of color and Limited English Proficient (LEP) individuals. Among the Behavioral Health Workforce in California, White individuals represent the majority of providers and there is a need for cultural and linguistic concordant providers. Therefore, providing more funds to this initiative could help close these gaps and improve mental health access for communities of color and LEP individuals.

• Eliminates the Skilled Nursing Facility (SNF) Workforce and Quality Incentive Program (WQIP) & Suspending Backup Power Requirements: By eliminating this program, there will be $168.2 million in General Funds saved in 2025-26 and then $140 million saved in ongoing funds. The SNF workforce is essential for communities of color and low-income populations in California, who often face higher rates of chronic conditions and limited access to alternative long-term care options. The WQIP program, which began January 1, 2023, provides performance-based payments to Medi-Cal-certified SNFs through MCPs. The program incentivizes facilities to improve staffing levels, reduce staff turnover, and deliver culturally responsive care. By aligning financial incentives with quality and equity goals, the program aims to ensure that vulnerable populations receive high-quality, person-centered care while also supporting a diverse and stable workforce. Eliminating this program could worsen health disparities, reduce access to essential care, and harm the economic stability of already vulnerable populations.

• Child Care Providers Won’t Receive Cost-of-Living Adjustment (COLA): This proposal will result in a $60.7 million reduction in General Fund spending for 2025-26 and future years. Even as operational costs and inflation may continue to rise, child care providers will not receive a COLA. In California, where the majority of providers are Latine (37%), this decision could further strain the child care system—particularly for those serving low-income families—and may limit access to affordable, high-quality child care.

Mental Health

• 988 Suicide and Crisis Lifeline Centers: The Governor’s May Revision includes $17.5 million in one-time funding to support the capacity of California’s 988 centers. California continues to experience the highest 988 call volume in the country. This funding will improve the ability of 988 call centers to respond to increasing demand and maintain services for callers in crisis.
• CalHOPE Warm Line: The May Revise includes $5 million from the Behavioral Health Services Fund to continue support for the CalHOPE Warm Line, which provides non-crisis emotional support. This is a welcome investment, which will help increase early access to mental health care and reduce reliance on emergency or institutional care. Expansion of the warm line should be done in partnership with BIPOC-led organizations.
• Maintains Behavioral Health Transformation: The May Revise reaffirms the state’s commitment to implementing Prop 1, with a request for $131 million to continue operationalizing the Behavioral Health Services Act. As counties begin developing their Integrated Plans under the BHSA, it is essential that the state reinforces expectations around robust, inclusive community engagement, especially from BIPOC communities that have been excluded from past behavioral health planning. Counties must use BHSA funding for voluntary, culturally responsive, and community-based services. This is an opportunity for California to affirm its values and invest in a behavioral health system rooted in equity, community, and care, especially as federal Medicaid funding faces threats and national policies grow increasingly hostile to the rights and wellbeing of communities of color.
• Maintains Behavioral Health Infrastructure Bond Act: The May Revise includes a $13.5 million request to support continued implementation of the Behavioral Health Continuum Infrastructure Program through Prop 1. These funds support competitive grants to counties and private entities to expand behavioral health facilities. Without clear safeguards, there is a risk that funding could support coercive settings rather than community-based, culturally responsive care. Strong oversight is essential to ensure these investment promote recovery and justice.
• Maintains BH-CONNECT: The May Revise maintains $8 billion of federal, state, and local dollars announced in the January budget proposal to expand behavioral health services for Medi-Cal members with serious mental illness. BH CONNECT expands county authority to use Medicaid funding for IMDs, but this comes with equity concerns. Communities of color experience worse outcomes in inpatient psychiatric settings, and for-profit facilities have long been criticized for poor quality of care, understaffing, and putting profits over patient safety. DHCS must provide more transparency around how it will oversee IMDs, ensure patient protections, and address racial disparities in institutional care.

Covered California  

The Governor’s May Revision maintains all of the Covered California January Budget funding allocations including:

• Maintains $165 million for Covered California’s financial assistance program – this program provides enhanced financial assistance to enrollees in Silver 73 plans with no deductibles and reduced out-of-pocket costs for all enrollees with incomes above 200% of the federal poverty level.
• Maintains $20.35 million to fund the $1 per member/per month California Premium Credit – this funding which is paid to health plans, allows some consumers (based on income and household size) to be able to purchase health plans with a $0 per month premium.
• Maintains $2 million for the striking worker benefit program, with additional increases up to $3 million, if needed as specified – this program helps workers who lose their employer-sponsored health insurance due to a strike, lockout, or labor dispute, to enroll in Covered California and receive maximum financial assistance, including subsidies and premiums and potentially reduced out-of-pocket costs.

Oral Health:

• Elimination of Dental Benefits, Adults 19 and Older: The May Revise proposes eliminating full-scope Medi-Cal dental coverage for adults with unsatisfactory immigration status, leaving them with only emergency dental services. While this proposal targets a narrower population than the 2009 rollback, it follows a similarly harmful pattern of denying essential care to low-income communities. California has already seen the consequences of these types of cuts. In 2009, when adult dental benefits were cut in California, dental utilization among adult Medi-Cal members dropped from 35% to 12%, and emergency room visits for dental conditions spiked. Today, even with full-scope dental benefits for adults restored, access remains low, with only 23.4% of adult Medi-Cal members visiting the dentist in 2022, due to persistent systemic barriers, limited provider participation, and historical instability in coverage. Eliminating dental benefits again, even for a subset of the Medi-Cal population, will lead to delayed care and force people to seek treatment in costly emergency settings. Oral health is not optional, it’s deeply connected to overall health, affecting everything from diabetes to cardiovascular disease to pregnancy outcomes and mental health. This cut will fall on the shoulders of immigrant communities who already face the steepest barriers to accessing care. It will undermine years of progress toward health equity and increase long term costs for the state. At a time when California should be protecting access to care, this proposal represents a deeply inequitable and short sighted policy choice.
• Elimination of Proposition 56 Supplemental Payments: The May Revise proposes to eliminate approximately $504 million in supplemental payments to dental, family planning, and women’s health providers in 2025-25, with $550 million in ongoing cuts. Prop 56 payments were designed to improve access and incentivize provider participation in underfunded Medi-Cal services, and they have been essential to retaining Medi-Cal providers. As of 2021, less than one-third of California dentists were enrolled as Medi-Cal providers. Without the financial support of Prop 56, even fewer providers pay participate, further worsening access for low-income communities of color who already struggle to find care. Eliminating these payments risks deepening existing access disparities and weakening California’s dental safety net.

Public Health:   

• Elimination of Remaining Funds for the California Reducing Disparities Project (CRDP) (reduction of $15.8 million in FY 2025-26). This $15.8M reduction from $58.1M originally authorized in the 2021 Budget Act would effectively eliminate all remaining funding to the program and have it reverted back to the General Fund. The CRDP funds culturally rooted mental health and healing programs for American Indian/Alaska Native (AI/AN), African American, Latino, Asian and Pacific Islander, and LGBTQ+ communities, including youth empowerment programs, suicide prevention and research to ensure traditional healing can be funded by Medi-Cal. These programs are working and must not be cut – 33 grantees would be impacted statewide and they would be forced to stop providing culturally competent and linguistically appropriate mental health services on July 1, 2025.
• The Governor’s May Revise proposed no changes to the foundational public health infrastructure funding for state and local health departments ($300 million General Fund, ongoing, since FY 2022-2023), despite sweeping changes to other health programs that impact the public’s health.

Specific Immigrant Programs:  

• California Food Assistance Program (CFAP): Food4All Seniors continues to face a delay. The California Food Assistance Program (CFAP) Expansion pause is extended. Adults 55 and over, regardless of immigration status, would be subject to a trigger-on, based on the availability of General Fund in spring 2027 making the future of the expanded nutrition benefit for undocumented seniors uncertain.

Human Services

• More on In-Home Supportive Services
  • Provider overtime and travel hours are being capped meaning that wraparound services will be limited for individuals needing specialized in-home care for a variety of health issues ($707.5 million GF saved, ongoing). This will interrupt services needed services for the most vulnerable in our communities who may need significant care through the IHSS program.

On Friday, January 10^th, Gov. Newsom released his proposed FY 2025-26 state budget. The $322 budget reflects a small surplus of $363 million after two years of state budget deficits. The budget includes $16.5 billion in additional revenue compared to estimates from last June but continues to rely on $7.1 billion in reserves despite a surplus and higher than expected revenues. The $229 billion General Fund spending plan maintains vital health and human services programs but refrains from including any significant new investments. 

In a year of uncertainty, as the Trump Administration aims to decimate the Medi-Cal program one in three Californians count on for their care, the Governor’s budget is a strong statement that California will stand by its values and our commitment to ensure every person has the opportunity to be healthy. The Governor’s budget makes a strong commitment to Medi-Cal for the 2025-26 fiscal year; the Legislature can make it even stronger by restoring the investments in community health workers lawmakers prioritized last year, but were unwound by the passage of Prop. 35.     
    
We are additionally encouraged to see Future of Public Health funding protected; the Avian Flu harming agricultural workers in the Central Valley and climate-change fueled fires devastating our state today make evident the need to stay prepared for threats to communities’ health. California can well afford to continue our progress on health equity. State revenues are stronger today because the wealthiest Californians are doing better than ever, a clear sign that they can contribute more to ensuring no one goes without the care they need to thrive.   

Medi-Cal Overall:   

The Governor’s budget allocates: 

• $174.6 billion ($37.6 billion General Fund) in FY 2024-2025, an increase of $2.8 billion General Fund, driven primarily by higher enrollment, caseload growth, and pharmacy costs, partially offset by MCO tax revenues. 

• $188.1 billion ($42.1 billion General Fund) in FY 2025-2026, an increase of $4.5 billion General Fund compared to revised 2024-25 expenditures, largely attributed to: 

• $3.6 billion due to changes in MCO tax revenue use 

• $215.2 million from growth in pharmacy expenditures, primarily due to GLP1 drugs. 

• $268.5 million reflecting other base cost changes (e.g., managed care rates, enrollment, and fee-for-service utilization). 

The Governor’s budget additionally includes $1.1 billion ($3 billion federal/state funds combined) tied to higher than projected Medi-Cal enrollment (450,000 individuals), due to the continuation of eligibility redetermination flexibilities post the public health emergency through June 30, 2025.  

The passage of Prop. 35 and future impact on the state’s General Fund creates additional uncertainty at a time when California’s Medi-Cal program is facing unprecedented federal attacks, including Republican proposals to cap or cut Medi-Cal, eliminate the enhanced federal matching rate for single, childless adults, restrict the use of provider taxes to finance state Medi-Cal costs, lower the minimum Medi-Cal matching rate for Medi-Cal beneficiaries, and impose onerous work requirements.  

Medi-Cal caseload: Medi-Cal is projected to cover approximately 15 million Californians in 2024-2025 and 14.5 million in 2025-2026, representing over one-third of the state’s population. Enrollment projections are based on higher than anticipated enrollment due in part to federal enrollment flexibilities, including waivers to increase ex parte rates, improve outreach strategies, and simplify income verification, making it easier for Californians to enroll in coverage.  

A 2024 CPEHN analysis found implementation of the federal flexibilities significantly reduced racial, ethnic, and linguistic disparities in ex parte renewal, continuation, and discontinuation rates, particularly for individuals with limited English proficiency. Despite a clear benefit, the federal flexibilities are slated to expire on June 2025. If California does not act, up to 500,000 additional Californians are projected to lose their coverage in FY 2025-2026. Additional threats from the incoming Trump administration and GOP leaders to convert California’s Medi-Cal funding to a per capita cap could result in millions more Californians, a majority from communities of color, losing their health care coverage.  

Managed Care Organization (MCO) Tax  

The proposed budget incorporates substantial changes to the MCO tax that impact the state’s use of MCO tax revenue to support existing Medi-Cal services. This is due to the passage of Proposition 35 in November 2024 and recent amendments to the MCO tax structure, which the federal government approved in December 2024.  

• Proposition 35 went into effect on January 1, 2025. Proposition 35 requires the state to request MCO tax approval from the federal government on an ongoing basis after the current MCO tax expires at the end of 2026. Proposition 35 also implements a spending plan for provider rate increases and other investments. For calendar years 2025 and 2026, Prop 35 requires the state to appropriate the following amounts to specified categories: 

Proposition 35 Augmentations
Support for Existing Medi-Cal Programs	$2 billion
Primary Care	$691 million
Specialty Care	$575 million
Emergency Room Physicians and Facilities	$355 million
Behavioral Health Facilities	$300 million
Community and Outpatient Procedures	$245 million
Designated Public Hospitals	$150 million
Abortion and Family Planning Services	$90 million
Graduate Medical Education	$75 million
Medi-Cal Workforce	$75 million
Emergency Ground Transport	$50 million
Services and Supports for Primary Care	$50 million

• The proposed budget includes $186 million to support the Proposition 35 investments in 2024-2025 and $3.3 billion in 2025-2026. DHCS will implement the final spending plan in consultation with the stakeholder advisory committee created by Proposition 35. Members of the advisory committee are appointed by the Governor and legislative leadership. The roll out of these investments will be delayed while DHCS works with the advisory committee to implement the augmentations. State lawmakers must monitor the implementation and asses impacts of the augmentations on patients’ access to care.  

• Increased MCO tax revenue from 2024 amendments is not subject to Proposition 35’s spending plan, allowing the state to retain additional dollars to support the existing Medi-Cal program and reduce General Fund costs. In 2024, the state legislature amended the MCO tax to increase revenues by $6.7 billion from 2024-2025 through 2026-2027. The Govenor’s budget proposes to use these dollars to support the Medi-Cal program in addition to the allocations from Proposition 35 for this purpose ($833 million in 2024-2025 and $2 billion in 2025-2026). In total, the budget reflects $7.9 billion in 2024-2025, $4.4 billion in 2025-2026, and $3.3 billion in 2026-2027 to support the Medi-Cal program. However, compared to the 2024 enacted budget, this is a total decrease of $3 billion to support existing Medi-Cal services due to the passage of Proposition 35.  

• The Governor’s budget fails to preserve equity investments agreed upon in the 2024 budget that were eliminated with the passage of Proposition 35. These investments included continuous Medi-Cal coverage for children under five, a living wage rate for community health workers, promotoras, and health representatives, and rate increases for private duty nursing, community-based adult services, congregate living facilities, and pediatric day health centers. Despite serving some of our most vulnerable Californians, these vital providers are left waiting for much needed investments. For example, congregate living facilities have been paid the same Medi-Cal rates for decades, leaving many at risk of closure. The legislature must act to reinstate these crucial investments.  

• The future of California’s MCO tax is uncertain. In the MCO tax approval letter from the federal government, CMS warns California is exploiting a regulatory loophole and CMS plans to take “imminent action to develop and propose new regulatory requirements” and recommends California “carefully consider how to mitigate or avoid any possible budgetary and program challenges that could result” from new regulatory requirements. The legislature must anticipate declining MCO tax revenues and ensure the rate augmentations are sustainable long-term to avoid future funding cliffs.  

Medi-Cal Mental Health:  

• Federal Approval for Medi-Cal’s BH-CONNECT Waiver ($8 billion of federal, state, and local dollars for 5 years): In December 2024, the federal government approved the BH-CONNECT Waiver to expand the behavioral health continuum for Medi-Cal members with significant behavioral health conditions. This waiver has the potential to transform California’s behavioral health system, but it must be implemented with a commitment to equity, transparency, and sustainability. We remain concerned about the county opt-in structure, which could worsen regional disparities as well as any initiatives that may divert funding away from voluntary, community-based services. To ensure these investments improve outcomes for all Californians, especially Black, Indigenous, and People of Color communities, the state should collect and publish disaggregated data by race, ethnicity, language, gender identity, and sexual orientation to monitor its impact on disparities. Ultimately, we urge the state to prioritize culturally responsive, community-based care over institutional approaches, strengthen accountability, and ensure services are accessible and equitable for all.  

• Behavioral Health Transformation ($93.5 million total funds, $55 million General Fund): Behavioral Health Transformation is the implementation of Proposition 1, which voters approved in 2024. For 2025-26, the Governor has allocated additional funding to support counties in administering this initiative. These funds will enable counties to begin developing their Integrated Plans, comprehensive three year roadmaps outlining how counties will allocate their behavioral health funding. The first County Integrated Plans are due in 2026, and counties will spend this upcoming year drafting their plans, incorporating stakeholder feedback through community engagement. We strongly encourage counties to fully utilize available tools to involve stakeholders, especially communities of color, through listening sessions, behavioral health boards, and County Board of Supervisor meetings. 

• Behavioral Health Infrastructure Bond Act of 2024 ($6.4 billion): In 2024, voters approved Proposition 1, which included The Behavioral Health Infrastructure Bond Act to address the state’s behavioral health and housing crisis. One-third of the bond is allocated for permanent supportive housing, and two-thirds of the bond will fund grants for counties and private entities to build clinical treatment facilities. We are deeply concerned that the original language barring the use of funds for involuntary, locked facilities was removed during the final negotiations, now allowing bond funds to support involuntary, locked treatment facilities. To ensure these investments promote recovery, we urge the state to prioritize voluntary, community-based care and implement clear funding guidelines limiting the use of funds for locked facilities. Additionally, accountability measures must be developed to ensure funds support culturally responsive, person-centered care, especially for communities who are disproportionately impacted by forced treatment. 

Covered California:  

The proposed budget maintains key affordability measures approved as part of the 2023 Budget Act, including up to $165 million annually, starting in FY 2024-25 for additional subsidy assistance for low-income Californians who purchase coverage in the state’s marketplace. However, the incoming Trump administration has pledged deep cuts to health care programs including a threat to eliminate enhanced federal subsidies. If these threats materialize, California will need to set aside additional funds from the Health Care Affordability Reserve Fund (HCARF) to maintain affordability for California consumers in future years. 

Oral Health:  

• The 2025-2026 Budget Proposal maintains adult dental benefits in Medi-Cal Dental: Consistent access to preventive and restorative dental care continues to be a significant challenge for low-income Black, Indigenous, and People of Color communities, which leads to oral health disparities across the state. We applaud the Governor’s commitment to maintaining these essential benefits, ensuring that low-income communities can continue receiving critical oral health services. 

Public Health & Prevention:  

• The January budget proposal does not make major changes to the existing programs under the Department of Public Health. The “future of public health” infrastructure investment for state and local health departments from the previous budget year remains intact.   

Other Health Programs:  

• New HCAI investment for improving maternal and newborn health outcomes with Diaper Initiative (up to $7.4 million General Fund in 2025-26 and $12.5 million General Fund in 2026-27):  Access to affordable diapers is a fundamental component of childcare, yet nearly half of families across the United States struggle to afford an adequate supply. Parents of color are disproportionately affected, often reporting greater challenges in meeting basic needs like diapers. The newly announced Diaper Initiative in California addresses this critical issue by providing a three-month supply of diapers, distributed through hospitals, at no cost to families with newborns. While this investment holds significant promise, the California Pan-Ethnic Health Network (CPEHN) seeks further clarity on the eligibility criteria for this benefit. This initiative has the potential to improve newborn health by reducing the risk of infections, diaper rashes, and urinary tract infections. It can also alleviate financial hardship for families of color and support parental mental health. The state has previously taken steps to address similar gaps. For instance, Assembly Bill 480, introduced in 2017, provided families with children aged three or younger who participated in the CalWORKs Welfare-to-Work program with a $30 monthly diaper stipend. In 2021, California received $1.2 million through the Department of Health and Human Services (HHS) to implement a Pilot Diaper Distribution Program. 

• Prescription Drug Affordability—With rising pharmacy costs, the Administration will 

continue to assess the main factors driving prescription drug price increases, including 

the role of pharmacy benefit managers. Building on the objectives of the Office of 

Health Care Affordability and CalRx, the Administration is exploring ways to increase 

transparency in the pharmacy supply chain and improve the affordability of prescription 

drugs for Californians. These efforts aim to help consumers, particularly in communities 

of color and low-income populations, by reducing the financial burden of essential 

medications, improving access to affordable prescriptions, and addressing disparities in 

health care costs. 

Workforce and CHW/P/Rs 

• Beyond the funds already allocated in the MCO tax, the Governor’s budget fails to mention any new initiatives for the healthcare workforce. 

• The Governor’s budget fails to sustain the CHW/P/R Medi-Cal reimbursement rate increases previously included in the FY 2024-2025 state budget. That budget had incorporated a 22.2% increase in reimbursement rates for CHW/P/R services, raising the rate from $26.66 to $32.58 per half-hour visit. This rate increase was supposed to be enforced starting January 1, 2025 and was a vital step toward ensuring fair compensation, as well as supporting the long-term sustainability of the CHW/P/R workforce. However, trigger language in the budget eliminated this planned rate increase following the passage of Proposition 35. While Proposition 35 establishes an important annual funding source for clinics and community-based organizations to support CHW/P/Rs, the grant program is capped at $32 million annually. Additionally, it will not take effect until 2027 and only if MCO tax revenues exceed $4.7 billion annually—a threshold that prior analyses suggest is unlikely to be met. As a result, CHW/P/Rs will not receive adequate Medi-Cal reimbursement funds. Without proper compensation, these essential healthcare workers face financial instability, jeopardizing the sustainability of their roles. CHW/P/Rs are uniquely positioned to serve underserved populations and improve health outcomes. To advance health equity, it is critical to invest in and adequately support the CHW/P/R workforce. 

Specific Immigrant Programs:   

While there were no significant changes to investments for immigrant programs, proposals have been introduced in the Special Session, proposing $10 million to the One California program, $10 million to the Equal Access Fund, and $5 million to the California Access to Justice Commission. However, immigrant rights’ advocates are requesting initial investments of $25 million for immigration legal services programs during the Special Session which includes: $15 million for the One California program for urgent services and $10 million for the California Access to Justice Commission’s detention representation program. CPEHN urges support for these investments given the likelihood of attacks on immigrant communities by the incoming federal administration.  

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