What’s happening: State lawmakers and Gov. Gavin Newsom this week reached a tentative agreement on the 2025-26 state budget, concluding weeks of negotiations.
What else to know: In a move vehemently opposed by hospitals, the final budget diverts Proposition 35 funds (estimated at $1.3 billion in 2025-26 alone) away from their intended purpose — enhancing payments to primary care, specialty care, hospital outpatient, and ground emergency medical transportation providers.
The budget finalized this week seeks to address the state’s multi-billion dollar shortfall, primarily through a mix of spending reductions, borrowing, and funding shifts. Specific provisions include:
- Medi-Cal Asset Limit Restoration: The budget includes a Medi-Cal asset limit of $130,000, an increase from the governor’s proposal of a $2,000 limit. This change results in General Fund savings of $45 million in 2025-26, growing to $510 million in future years.
- Undocumented Medi-Cal Enrollment Changes: Starting Jan. 1, 2026, undocumented residents over the age of 19 would be subject to a Medi-Cal enrollment freeze; this includes a six-month re-enrollment grace period and specifies that children will not age out. Savings grow to $3.3 billion annually when fully implemented in future years.
- Premiums for Undocumented Adults: Premiums for undocumented adults aged 19-59 will begin July 1, 2027, at $30 per month (lowered from the governor’s proposed $100 per month). Net savings begin in 2027-28 and are projected to reach $675 million annually.
- Prescription Drug Rebates and Exclusions: The budget adjusts the prescription drug rebate aggregator to include undocumented populations, generating $370 million in 2025-26. Additionally, coverage for specialty weight loss drugs will be excluded from Medi-Cal, resulting in savings reaching $680 million by 2028-29.
- Proposition (Prop) 56 Supplemental Payments: The final budget rejects the elimination of $172 million in Prop 56 payments for family planning and women’s health services, and delays cuts to dental supplemental payments and benefits for undocumented individuals until July 1, 2026.
- Health Centers and Clinics: Reductions to health centers and rural health clinics totaling $1.1 billion annually are delayed until July 1, 2026.
CHA’s summary includes a detailed breakdown of key budget provisions for hospitals.
