Each Wonks’ Corner, a member of Blue Shield’s government affairs team dives into a current policy topic. See our previous Wonks’ Corner blogs here.
As families stretch their budgets further than ever — Medi-Cal has become a lifeline for over 14 million Californians—more than one-third of the state’s population. Medi-Cal delivers care to working families, children, older adults, people with disabilities, and individuals experiencing homelessness. This includes more than 1.3 million children covered by California’s Children’s Health Insurance Program (CHIP) and nearly 14 million managed care enrollees, many of whom are served by Blue Shield Promise.[1]
As a nonprofit health plan, Blue Shield of California Promise sees firsthand how Medi-Cal supports not only healthier communities, but also a healthier economy. By promoting preventive care through CalAIM[2], reducing hospitalizations, and supporting workforce productivity, Medi-Cal underpins the infrastructure that allows California to thrive. Yet this safety net is under increasing economic pressure with growing healthcare costs, and state and federal funding uncertainty. Sustaining this essential program requires more than just short-term cost-cutting—it demands thoughtful reforms that promote value and ensure long-term stability for Medi-Cal and the millions who rely on it.
Rising Medi-Cal Costs
Governor Gavin Newsom’s 2025–26 May Revision projects Medi-Cal spending at $194.5 billion, an 8.7% increase ($15.5 billion) over the prior year. General Fund spending alone is expected to grow by $7.2 billion (19.2%).[3] Nationally, Medicaid outpatient drug spending surged from $30 billion to $51 billion between FY 2017 and FY 2023.[4] Several key factors are driving these rising costs: [5]
- Enrollment Growth – Higher-than-expected enrollment due to program expansions.
- Greater Utilization – Increased use and cost of services.
- Prescription Drug Costs – Rising prices for specialty drugs, including treatments for HIV/AIDS, cancer, and weight loss.
These rising cost drivers and state’s economic uncertainties prompted Governor Newsom to propose a range of cost-containment measures in his 2025–26 May Revision.
2025–26 State Budget & Medi-Cal
To address the sharp rise in Medi-Cal spending and close California’s projected $12 billion budget deficit, Governor Gavin Newsom’s May Revision proposed a series of cost containment measures and program adjustments. Among the most consequential were proposals to freeze enrollment in full-scope Medi-Cal for undocumented adults and require those already enrolled to pay $100 monthly premiums. The Governor also proposed eliminating certain optional benefits for undocumented adults, including full dental coverage and long-term care services, as well as ending acupuncture as a covered benefit.
In a broader effort to rein in costs, the May Revision called for reinstating asset tests for Medi-Cal eligibility, rolling back previous policy changes aimed at expanding access. Additionally, the Governor proposed eliminating Proposition 56 supplemental payments for dental and reproductive health providers and suspending associated loan repayment programs.
On the pharmacy side, the administration advanced several reforms designed to control drug spending. These included implementing a state-run rebate aggregator, introducing step therapy protocols, requiring prior authorization for continuing drug therapies, and eliminating coverage for GLP-1 drugs used for weight loss.
In response to the Governor’s May Revision, the California Legislature passed the state budget bill on June 13th, incorporating several key proposals while making targeted adjustments. The Legislature aligned with the Governor on the Proposition 35 spending plan and pharmacy reforms, approving measures such as a state-run rebate aggregator, expanded use of step therapy protocols, and prior authorization requirements to better manage drug costs.
The Legislature opted to delay the elimination of Medi-Cal services for adults with unsatisfactory immigration status, signaling concerns about the potential impact on vulnerable populations. They also preserved Proposition 56 supplemental payments for family planning and reproductive health providers. Additionally, the budget included investments in the health care workforce, directing funds to support training programs and provider recruitment efforts.
Over the coming weeks, the Governor and Legislative Leaders will continue to negotiate to hammer out the differences between what the Legislature passed and what the Governor is requesting. The core of the issue is that they must strike a balance between closing the budget gap and advancing Medi-Cal reforms that support the transformation of Medi-Cal through cost control (especially on prescription drugs) and focused investments in high-value care models that prioritize health outcomes, while preserving access for the most vulnerable. The Medi-Cal program shares overwhelming public support—with more than 75% of Californians opposed to benefit cuts.[6] The Governor’s deadline to sign, veto, or line-item veto the budget bill is Friday, June 27, 2025. Additional budget legislation will continue into the fall as the federal government is expected to pass major budget and tax legislation.
