What’s happening: This week, the Assembly and the Senate agreed on a budget package for the 2025-26 fiscal year that diverts Proposition (Prop) 35 funds away from their intended purpose; the package also includes several other key provisions relevant to hospitals and health care providers, particularly within the Medi-Cal program.
What else to know: The budget will not be finalized until later this month, following negotiations with Gov. Gavin Newsom — and further revisions may be necessary if federal policy changes affect the state budget.
Prop 35 funds are meant to enhance payments to primary care, specialty care, hospital outpatient, and ground emergency medical transportation providers. Instead of enhancing payments as voters intended, the budget agreement approves Gov. Newsom’s proposal to redirect those funds to support base capitation payments to managed care plans, offsetting costs that would otherwise be borne by the general fund.
The legislative budget would also:
- Set a significantly higher $130,000 asset test threshold for Medi-Cal eligibility compared to the governor’s proposed $2,000 limit on assets (currently there is no asset test)
- Limit eligibility for new enrollment among adults with unsatisfactory immigration status, beginning in 2026
- Establish a new monthly premium of $30 — rather than $100, as proposed by the governor — for some undocumented adults starting in 2027
- Delay until July 2027 proposed cuts to health center and rural clinic reimbursement and dental benefits for undocumented adults
- Reject Gov. Newsom’s proposal to eliminate coverage of long-term care and in-home supportive services for undocumented adults
- Preserve certain supplemental payments for family planning and women’s health, funded by the Prop 56 tobacco tax, which the governor slated for cuts
- Delay the elimination of Prop 56 enhanced dental payments until July 1, 2027
Looking ahead, the Senate signals interest in establishing a “large employer Medi-Cal contribution,” a larger tax penalty to encourage employer-based coverage and/or provide additional state revenue in future years.
