California is teetering on a healthcare cliff, but few are paying attention
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- About 15 million adults and children, or about 1 in 3 of California residents, rely on Medi-Cal.
- The Newsom administration projects that federal changes could push 1.3 million people off Medi-Cal by 2029-30.
When Congress passed the big, ugly bill known as HR 1 last year, most Americans understood it meant cuts to Medicaid, the safety net program millions rely on for medical insurance.
But few Californians realized just how much it will affect the Golden State when its provisions really kick in, starting after the midterms (the Republicans aren’t that dumb) and continuing on in cascading cuts for the next few years.
Millions of Californians — not just low-income folks — are going to feel the effects, whether through a loss of insurance, fewer providers able to keep their doors open, or rising premiums and costs.
“This problem trickles up,” state Senate leader Monique Limón (D-Goleta) told me. “This is not just going to impact the people that have a public healthcare plan. When you see a hospital close, when you see medical providers no longer being able to practice, it is absolutely going to impact everybody, the middle class included.”
Added to the loss of federal funds, Gov. Gavin Newsom’s most recent budget plan (which the Legislature has to debate in coming weeks) includes cuts at the state level. This is in part to contend with the loss of federal money, but also because healthcare costs keep rising and even in this wealthy state, we can’t afford the bills — at least not without some changes.
What those changes are — and who should bear the brunt of them — is a complicated and largely ignored debate happening right now. While our candidates for governor have been grilled on whether they support single-payer healthcare or not, (Becerra is a sort-of, Steyer is a yes) the real question isn’t how is the next governor going to expand access to care — but how are we going to keep the whole system from collapsing right now.
“This is not hypothetical, this is what’s coming down the line,” Limón said.
The problem
About 15 million adults and children, or about 1 in 3 of our state’s residents, rely on Medi-Cal, which is what California calls its Medicaid program.
Through a creative bit of state financing called the Managed Care Organization, or MCO, tax, the federal government has been paying for a big chunk of the costs of that insurance, about $7 billion a year. President Trump’s HR 1 makes that money go bye-bye by greatly reducing the MCO, leaving the state to figure out how to backfill that cash. And that’s just one of the ways the big, ugly bill hurts California. Yes, it’s complicated.
Newsom’s budget plan relies in a not-small way on restructuring the MCO tax to fit HR 1’s new rules. But here’s the problem with that — any fix will require approval from the Trump administration, which has repeatedly shown the welfare of Californians is not a high priority. In fact, the Trump administration in March rejected California’s request to update another fee related to hospitals that also generates billions for Medi-Cal.
So maybe Newsom will be able to negotiate a plan that saves the MCO and California healthcare. But wouldn’t it be much better for the GOP, with a presidential election looming, to watch California (and her presidential-contender governor) tumble off a healthcare cliff? Few states rely on an MCO tax the way ours does, which means our pain is going to be far more visible and profound if we lose this funding.
That means if Newsom’s budget is approved by the state Legislature with the MCO fix, the state is taking a gamble. If the feds don’t approve some new version of the MCO tax, “it would have major implications,” Adriana Ramos-Yamamoto told me. She’s a senior policy fellow with the nonpartisan California Budget and Policy Center.
Sort-of solutions
What’s the fourth-largest economy in the world to do? Limón would like to see the state stop subsidizing corporations who pay so meagerly that their employees qualify for Medi-Cal.
“We don’t have the luxury of being able to provide these tax subsidies,” Limón said.
Turns out, 42% of Medi-Cal enrollees are full-time workers, according to a new report by the UC Berkeley Labor Center. Although most big corporations offer some sort of health insurance, it’s often tied to working a certain number of hours (which they then make sure not to schedule) or it has prohibitive costs or other barriers.
In 2022, the Labor Center found, 34% of low-wage workers received their health insurance through employers, compared with 69% of higher wage workers — meaning California is picking up insurance costs because low-wage employers are finding ways out of them.
“Over the decades, Medi-Cal has really undergone a significant transformation. It’s shifted from a program that primarily served the disabled and indigent and elderly folks to one that largely supports folks that work in low-wage industries,” Tia Orr, the executive director of SEIU California, told me. “Medi-Cal has now become a program where folks that work every single day have to rely on it. The idea that someone can work every day and qualify for food stamps and Medi-Cal, it should be eye-opening to folks.”
Right now, she points out, California taxpayers are paying about $7,800 a year for each person on Medi-Cal.
“The corporations that they work for don’t have to pay one dollar of that, right?”
Limón and her Senate colleagues would like to change that. They have proposed the “Fair Share” plan that would impose a tax on the state’s largest and wealthiest corporations whose employees rely on public assistance. It’s more of an idea than a fleshed-out policy at this point, but as ideas go, it ain’t a bad one. It’s been done in Massachusetts, and New Jersey’s governor has suggested it.
In California, it deserves more attention than it’s currently being given.
To be fair, Newsom’s plan also would also limit state corporate tax credits to $5 million, as my colleague Taryn Luna points out, or 50% of a firm’s tax liability, whichever is greater. That change could bring in $850 million next year to state coffers and grow to $1.8 billion by the end of the decade. That’s still not nearly enough to cover healthcare costs.
To add to the drama, the California Legislative Analyst’s Office predicts all this will get worse — that the number of Californians losing health insurance coverage could roughly double in the next four years. The Newsom administration projects federal Medi-Cal changes could push off 44,000 people in 2026-27, growing to 1.3 million people by 2029-30.
That means more people getting sick and dying because they can’t afford a doctor. It means more doctors, clinics and hospitals losing income vital to keeping their doors open, and more emergency rooms being overloaded because it’s the only option.
“The worst is yet to come,” Rachel Linn Gish, interim deputy director at Health Access California, a consumer healthcare advocacy coalition, told me. “If you wait to take action until it gets bad, it’s already going to be way too late.”
She’s right, and however you look at it, a fix should include corporations paying their fair share.
What else you should be reading
The must-read: Justice Department sues UCLA for the third time, alleges antisemitism against students
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The L.A. Times Special: Garden Grove crisis exposes Southern California’s hidden industrial risks
Stay Golden,
Anita Chabria
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Ideas expressed in the piece
The article argues that California is “teetering on a healthcare cliff” because of intersecting federal and state policy changes that will sharply reduce public funding for health coverage, particularly through Medi-Cal, over the next several years. It notes that millions of residents, including middle‑class Californians, will feel the impact through lost coverage, higher premiums and cost‑sharing, and the closure or contraction of clinics and hospitals.
The piece contends that federal actions — in particular HR 1’s restructuring of the Managed Care Organization (MCO) tax that helps finance Medi-Cal — will strip away roughly $7 billion a year and force the state to find new revenue or cut services, with California uniquely exposed because it relies on this financing mechanism more heavily than most states.
The article maintains that Gov. Gavin Newsom’s budget strategy, which attempts to reconfigure the MCO tax under new federal rules, is a high‑stakes gamble because any fix requires approval from a Trump administration that has already rejected other California Medicaid‑related financing requests and is described as politically disinclined to protect the state’s safety net.
The column suggests that looming federal changes are part of a broader affordability crisis in health care, pointing to rising underlying costs and the phase‑out of enhanced federal premium subsidies that had temporarily made coverage more affordable for individual‑market consumers, especially in 2021–2025.[1][2][3] It frames these expiring subsidies and related “cliffs” as further evidence that Californians at many income levels are being pushed toward unsustainable health costs.
The piece emphasizes that Medi-Cal has evolved from a program primarily for disabled, elderly, or very low‑income residents into a major support for low‑wage workers, citing research that a large share of enrollees are employed full time in jobs that do not provide adequate or affordable employer coverage. It argues that this shift effectively amounts to a public subsidy for employers who keep wages and benefits low.
The article highlights a proposed “Fair Share” plan in the state Senate that would tax large, profitable corporations whose employees rely on public assistance, arguing that such employers should contribute more toward the public programs that are effectively backstopping their labor costs. It notes that similar approaches have been attempted or discussed in other states and presents this as a promising, if still incomplete, solution.
The column acknowledges that Newsom’s plan to limit large corporate tax credits would raise additional revenue but stresses that the projected amounts fall far short of what is needed to offset federal cuts and absorb rising healthcare costs, reinforcing the argument that broader structural revenue changes or corporate contributions are necessary.
The article warns that state and federal policy choices together could lead to substantial coverage losses over the coming years, echoing projections that the expiration of enhanced ACA subsidies and other federal changes could drive millions nationally to drop coverage as premiums rise and tax credits shrink.[2][3][6] It frames California’s own forecasted Medi-Cal losses as part of this national retrenchment.
The piece asserts that these coverage losses will not be abstract: more uninsured Californians will delay care, get sicker, and potentially die because they cannot afford treatment, while safety‑net providers will face mounting financial pressure, leading to closures and more crowded emergency rooms, with spillover effects on insured, middle‑class patients.
The article concludes that waiting to act until the crisis fully materializes will be “too late” and contends that any viable fix must include requiring corporations to pay what the piece characterizes as a fair share toward the healthcare system, given their reliance on publicly subsidized insurance for their workforce.
Different views on the topic
Some health policy analysts emphasize that, despite the severity of upcoming premium increases, the steepest financial shocks in 2026 will fall on higher‑income Marketplace enrollees above 400% of the federal poverty level, not on the lowest‑income Medi-Cal population the article focuses on, because enhanced ACA premium tax credits are reverting to pre‑2021 rules and restoring the “subsidy cliff.”[2][3][4][6] From this perspective, the primary coverage risk is that middle‑ and upper‑middle‑income consumers in the individual market may drop coverage as subsidies shrink, rather than a uniquely California Medi-Cal collapse.
In contrast to the article’s focus on broad corporate taxation, some experts argue that policy responses should prioritize targeted financial assistance to lower‑income consumers and those just below the subsidy cliff, rather than imposing new, generalized taxes on large employers. They note that in California’s exchange, state‑based aid is being concentrated on consumers up to 150% of the federal poverty level in 2026 in order to keep premiums comparable to 2025 for this group, even as middle‑income enrollees face higher premiums, deductibles, and copays.[1] This approach favors narrowly tailored subsidies over structural tax changes aimed at large corporations.
Some coverage of the 2026 subsidy changes stresses that most Medi-Cal members are not expected to see immediate eligibility or benefit changes under current federal rules, suggesting that the immediate “cliff” is more pronounced in the ACA Marketplace than in Medicaid.[5] That framing implicitly challenges the notion that California is uniquely and imminently on the verge of a Medi-Cal‑driven systemwide collapse, instead portraying the problem as a differentiated set of pressures across programs.
A number of economists and fiscal conservatives contend that rapidly escalating public healthcare spending is unsustainable and argue that states should respond to federal pullbacks by restraining costs and tightening eligibility or benefits, rather than by raising new taxes on businesses. They point to projections that extending enhanced ACA subsidies nationwide would cost hundreds of billions of dollars over a decade, and use these estimates to argue that continually backfilling federal reductions with state revenues risks crowding out other priorities and undermining long‑term fiscal stability.[3]
Some business‑oriented commentators warn that corporate “fair share” taxes targeted at firms with many workers on public assistance could discourage hiring of low‑wage workers, incentivize greater use of part‑time or contract labor, or push companies to relocate to states with lower tax burdens. These critics argue that such policies could ultimately harm the very workers they intend to help if employers respond by reducing jobs, hours, or wage growth, and contend that reforms should instead focus on broad‑based economic growth and regulatory changes to reduce healthcare costs.
Certain analysts highlight that, even with the return of the subsidy cliff, ACA tax credits will continue to provide substantial support to low- and moderate‑income Marketplace enrollees, and that consumers often have tools to mitigate the impact, such as switching to lower‑priced plans or adjusting income to remain under key thresholds.[2][4][6][7] This perspective tends to portray 2026 as a serious affordability setback but not an inevitable “collapse,” arguing that coverage declines will depend heavily on state‑level decisions, consumer behavior, and the broader economy.
Some policy experts frame the federal changes less as an attack on California specifically and more as part of a national recalibration of pandemic‑era expansions, noting that the enhanced ACA subsidies were explicitly temporary and that Congress’ decision not to extend them reflects competing federal budget priorities.[2][3][6] From this view, California is experiencing a difficult but predictable tightening rather than being singled out for politically motivated punishment, and the appropriate response is long‑term planning and incremental reform rather than emergency rhetoric.
Additionally, some commentators argue that focusing on raising revenue obscures the need to tackle underlying drivers of healthcare costs, such as hospital consolidation, high drug prices, and administrative complexity. They suggest that without structural cost containment, new corporate taxes or state subsidies will only temporarily delay future funding crises, and contend that policymakers should pair any revenue measures with aggressive efforts to reduce the overall price of care.
