How Will the Changing Landscape Affect California’s Health Care System?

analysis full 2026-27 BUDGET How Will the Changing Landscape Affect California’s Health Care System? GABRIEL PETEK | LEGISLATIVE ANALYST MAY 2026 www.lao.ca.gov 1 analysis full AN LAO REPORT 2 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT Executive Summary Overview The Health Policy Landscape Is Changing. Over the past decade, federal and state policy changes have expanded access to health care in California. This policy landscape is changing, however. In June 2025, the Legislature enacted numerous state budget solutions in Medi-Cal, California’s Medicaid program, to help address the state budget’s structural deficit and control rising programmatic costs. Then in July 2025, Congress enacted H.R. 1, which makes additional changes to Medicaid and the health insurance marketplace. Both sets of changes likely will have notable effects on access to health care and the state’s health care system. Report Analyzes Projected Effects on California’s Health Care System. This report builds on previous Medi-Cal-focused analyses by assessing the changing landscape for the broader health care system. Our analysis is subject to considerable uncertainty, however. As such, it should be treated as preliminary. Actual effects could be quite different from our projections. Moreover, our analysis focuses on what we understand to be the largest effects, but is not comprehensive in addressing every effect or policy change. Effects of Changing Landscape More Californians Will Become Uninsured. Currently, around 2 million Californians (5 percent of the state) do not have health insurance. We project this amount to roughly double by 2030. Most of the increase in the uninsured population (nearly 90 percent) will be due to eligibility changes under H.R. 1, most notably from community engagement requirements. We project the remainder of the increase to come from people leaving Covered California coverage due to a series of federal policy changes. We also project that another 1.3 million adults with unsatisfactory immigration status (UIS)—mostly undocumented immigrants—will leave comprehensive coverage in Medi-Cal due to several state policy changes. Our projections assume that people in this latter group remain enrolled in Medi-Cal, but only with emergency coverage. Hospitals and Clinics Likely Will Face Tighter Finances. The increase in the uninsured population will place greater financial pressures on hospitals and clinics. This is because many providers will still provide some care to these populations without receiving reimbursement, also known as uncompensated care. We project the aggregate cost increase in uncompensated care for hospitals and clinics could be at least a few billion dollars by 2030. Coverage reductions for adults with UIS and upcoming Medi-Cal reimbursement reductions could add to these effects, but the magnitude is difficult to predict due to limited data. These impacts likely will have bigger impacts on certain kinds of providers, such as safety-net hospitals and clinics. Some Private Health Insurance Premiums Could Increase at Faster Rates. Departures from Covered California are also expected to drive up average premiums in the individual health insurance marketplace. The reason is that healthier enrollees are more likely to leave coverage, leaving behind a higher-risk pool for insurance plans. Initial data suggest this effect explains around one-fifth of the growth in gross premiums in 2026, though longer-term effects in future years are uncertain. Effects on employer-sponsored health insurance premiums are more uncertain and largely depend on the health acuity of new enrollees. www.lao.ca.gov 3 analysis full AN LAO REPORT Counties Face Increasing Cost Pressures. State law tasks counties with providing basic health care to low-income uninsured residents. In practice, county indigent health programs have served as a last resort of care for the uninsured. Caseloads in these programs have notably declined over the last decade, due to various expansions in Medicaid and marketplace insurance coverage. As the uninsured population rises in the coming years, however, counties likely will experience additional demand for services and greater cost pressures. Pinpointing these costs is challenging, as counties have flexibility to determine program eligibility and benefits. That said, we estimate that costs to provide county services to an increased population could be as high as the low billions of dollars annually (including some uncompensated care for county hospitals). Issues to Consider In Short Term, Enhance Oversight and Consider Targeted Responses. The magnitude of the effects we describe is uncertain. Moreover, the state’s fiscal situation is notably constrained due to projected structural deficits. Given these issues, we recommend the Legislature focus in the short term on bolstering its oversight over hospitals, clinics, and county programs as the nature and extent of the impacts from forthcoming policy changes come into clearer focus. This oversight could include more systematically tracking caseloads and fiscal conditions of affected entities. The Legislature also could explore providing limited-term, targeted assistance for entities particularly at risk of near-term financial distress. In Long Term, Weigh Trade-Offs of More Structural Changes. With more information available over time, the Legislature could explore structural policy changes to adjust to the new health financing landscape. For example, the Legislature could revisit its existing expectations of providers and counties, either by tightening requirements to ensure more consistent service delivery statewide, or by loosening requirements to allow more flexibility to manage costs. The Legislature also could revisit long-term financing approaches, such as its funding approach for county indigent health programs, to better reflect the new landscape. Transition Could Be Challenging, but Not Unprecedented. Health care consumers, providers, and payors in California will face heightened fiscal constraints as a result of the changing fiscal and policy landscape. The circumstances of these constraints are not unprecedented, however—much of the new landscape likely will resemble conditions that existed more than a decade ago. This is because these changes unwind some eligibility and financing changes that occurred after state implementation of federal health policy reforms in 2014. Moreover, from an access standpoint, the state will still be in a better position than before 2014, with key reforms (such as the Covered California marketplace) still intact. Keeping this broader context in mind, the Legislature, administration, providers, and counties likely will need to work collaboratively to adjust policies, financing structures, and services to align with the new landscape and fiscal realities. 4 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT INTRODUCTION The fiscal and policy landscape is changing state’s health care system is complex, involving for health care in California. In our previous 2025 different kinds of services, consumers, providers, report, Considering Medi-Cal in the Midst of and payors. Second, several key forthcoming policy a Changing Fiscal and Policy Landscape, we changes are largely new to California, making described how this new landscape could affect the magnitude of their effects difficult to predict. Medi-Cal, California’s Medicaid program. Our With so much uncertainty, our analysis should be follow-up budget briefs more specifically projected treated as preliminary, with actual effects potentially the associated costs in Medi-Cal and analyzed being quite different from our projections. Moreover, the implications for county administrative costs. our analysis focuses on what we understand to In recent months, members of the Legislature be the largest effects, but is not comprehensive in have expressed interest in understanding the addressing every effect or policy change. implications of this new landscape for the state’s We first provide background on California’s broader health care system, including on health health care system and the changing landscape. care coverage, providers, and county health Next, we analyze the changes’ potential effects programs. This report aims to provide this on California’s health care system—health care broader analysis. coverage, hospitals and clinics, private insurance, Projecting the impacts on the state’s health care and counties. We conclude with key issues for the system is challenging for two key reasons. First, the Legislature to consider. BACKGROUND Below, we provide background on Figure 1 California’s health care system and the changing landscape. Medical Services Comprise More Than Half of Health Care Spending in California California’s Health Care System $405 Billion in Personal Health Care Spending in California in 2020 Californians Access Numerous Kinds of Health Care Services. Other Products Products Health care consists of products and services that aim to improve people’s health, including by treating illnesses Prescription Drugs and other ailments. As Figure 1 shows, medical care provided at doctor’s offices, hospitals, and clinics comprised more than half of personal health care Other Servicesª spending in California in 2020 (the most Medical Services recent year available). Other services include long-term supports (such as at nursing facilities), home health Services care, personal care, and behavioral health care. Health care in aggregate comprises around 15 percent of California’s economy. a Includes long-term supports (such as at nursing facilities), home health care, personal care, and behavioral health care, among other areas. www.lao.ca.gov 5 analysis full AN LAO REPORT Health Care Is Mostly Provided in Privately Around 7 million Californians (around Owned Facilities. A likely sizable portion of health 20 percent) are enrolled in Medicare. This care services occurs in doctor’s offices or at includes 1.5 million low-income seniors and people’s homes. The remainder generally occurs persons with disabilities enrolled in both at licensed health care facilities. As Figure 2 Medi-Cal and Medicare (also known as dual shows, there are numerous kinds of licensed eligibles). For these dually enrolled people, facilities, including clinics, hospitals, and long-term Medicare is the first payor of certain services, care facilities. While many health care providers with Medi-Cal covering remaining costs. are employed by private entities and practice in privately owned facilities, there are some Figure 2 publicly owned entities. For example, California has a handful of public hospitals owned by the Californians Access Health Care University of California, counties, and special In Many Kinds of Facilities health care districts. Approximate Number of Licensed Facilities Public Programs Provide a Larger Share of Health Care Coverage. Most health care consumers in California do not directly pay for the full cost of services at the point of care. Instead, + most people in the state have health coverage that helps pay for services. As Figure 3 shows, more Clinics Hospitals Long-Term Care than half of Californians obtain coverage through 3,300 primary care 430 general 1,200 nursing public sources. Most of the remainder have health 1,000 surgical 200 behavioral 1,000 intermediate care 750 dialysis health 300 other insurance through their employer or purchase it 100 other themselves. Federal, state, and local governments promote health coverage in five key ways: Figure 3 • Medi-Cal. Medi-Cal, California’s Medicaid More Than Half of Californians Have program, covers health care Health Coverage From Public Programs services for low-income 2024 people. Like other state Medicaid programs, Medi-Cal Uninsured is jointly administered and Individual funded by federal, state, and local governments. It is the single largest source of coverage in the state, with around 15 million Medi-Cal Public enrollees, or over one-third of all Californians. Employer Sponsored Private • Medicare. Medicare is a federal program that covers health care for seniors and persons with disabilities. It is generally Medicare Medi-Cal and Medicare funded through a mix of payroll taxes, premiums, and direct federal support. 6 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT • Covered California. Covered California— In practice, these programs are a place of established pursuant to the federal Patient last resort for low-income, uninsured people Protection and Affordable Care Act (ACA)—is to access basic coverage. State law grants the marketplace that enables individuals to counties flexibility to determine eligibility rules, purchase health coverage from various private benefits, and cost-sharing requirements. insurers. Consumers can choose from a Counties also vary in the way they deliver range of lower- and higher-cost plans. Certain services; some contract with providers lower-income consumers may also be eligible while others operate their own hospitals and to receive federal and/or state subsidies that clinics. Most rural counties participate in reduce their costs. a consolidated program called the County • Private Health Insurance Mandates. Medical Services Program, which provides California and federal law place several health care services to enrolled individuals in requirements around accessing private member counties. health insurance. For example, federal law requires large employers to offer insurance The Changing Landscape to their employees. State law also requires Over the Last Decade, Health Care Coverage individuals to have health coverage or face and Benefits Have Expanded. Prior to recently tax penalties. Moreover, federal and state law enacted changes, federal and state health policy includes numerous requirements on health focused on expanding coverage and services. plans to offer certain services and meet Figure 4 shows the main changes. One key driver certain standards. of the growth in coverage was state implementation • County Indigent Health Programs. of the ACA—federal legislation focused on Longstanding state law tasks counties expanding Medicaid and private coverage. Though with providing health care to low-income, many key portions of the ACA became optional due uninsured people. Counties do so by to court rulings, California elected to implement the operating indigent health programs. optional provisions. The Legislature also enacted Figure 4 Federal and State Actions Have Expanded Health Care in California Key Federal and State Actions Over the Last Decade, Prior to 2025 Federal Actions Patient Protection and Affordable Care Act • Allowed state to expand Medicaid coverage to income-eligible childless adults, with greater federal cost sharing. (California chose to implement in 2014.) • Allowed states to create health insurance marketplaces, with federal premium subsidies for lower-income consumers. (California created Covered California.) • Imposed new health care mandates on employers, individuals, and health plans. (Some were later overturned by federal courts, but California opted to develop its own mandates.) Other Key Changes • Enhanced rules and enforcement of mental health parity, Medicaid access, and other key health areas. • Expanded Medicare’s ability to negotiate drug prices and limit out-of-pocket costs. State Actions Medi-Cal Eligibility • Expanded comprehensive Medi-Cal coverage to income-eligible undocumented immigrants. • Eliminated asset limit for seniors and persons with disabilities. • Added several new benefits, including community supports and enhanced care management. • Expanded certain provider rates through Proposition 52 (2016), Proposition 56 (2016), and Proposition 35 (2024). Other Key Changes • Created supplemental premium subsidies in Covered California health exchange. • Mandated private health insurance cover certain health benefits. • Expanded state regulation of health care costs. www.lao.ca.gov 7 analysis full AN LAO REPORT several expansions at the state level, most notably • Comprehensive Medi-Cal Coverage for by extending comprehensive Medi-Cal coverage to Undocumented Immigrants. Undocumented undocumented people. immigrants have long been technically eligible Expansions Notably Reduced Uninsured for Medi-Cal, but only for emergency care Rate. As Figure 5 shows, health coverage has (including visits to the emergency room, expanded over the last several years, mostly in pregnancy-related care, and long-term care). public programs. As a result of this expansion, the The state expanded these populations’ state’s uninsured rate (the percent of the population eligibility for comprehensive Medi-Cal without health insurance) fell from over 14 percent coverage in phases. in 2012 to around 7 percent by 2016. The rate has Medi-Cal caseload also has been at temporarily continued to decline over time, reaching around elevated levels in recent years due to limited-term, 5 percent by 2024. Three key factors were largely pandemic-related policies. Many of these policies behind this coverage expansion, described below: have since ended, with overall caseload expected • Medi-Cal Coverage for Childless Adults. As to decline over time. part of the ACA, the state expanded Medi-Cal Since These Expansions, California’s Budget eligibility to income-eligible childless adults Situation Has Tightened… Over the past three (as well as some higher-income parents). This years, the state has solved $125 billion in budget population today consists of around 5 million deficits. Moreover, as we have noted in previous people. Federal funding covers most of the publications, the state budget is projected to cost (90 percent) of this expansion, a much face sizable structural budget deficits starting in larger share of federal cost than for most 2027-28. At the same time, Medi-Cal spending populations (50 percent). has grown somewhat faster than the rest of the • Private Insurance Expansions. State state budget in recent years, with a particularly policymaking under the ACA created several larger-than-expected increase in 2025-26. other policies to expand private insurance …Resulting in the Legislature Enacting coverage. These included the creation of the Several Reductions in Medi-Cal in June 2025. Covered California marketplace, coverage With the state’s fiscal situation tightening and mandates for employers and individuals, and Medi-Cal costs rising, the Legislature enacted prohibitions around denying coverage for several budget solutions in Medi-Cal as part of preexisting conditions. the 2025-26 budget. Some solutions partially overturned recent state expansions. Figure 5 Most of these solutions are ongoing, with savings expected to ramp up over time. Health Coverage Has Notably Expanded Over Time Several Federal Policy Changes Share of California Population, LAO Estimates Also Affect Health Policy in California. After the state’s enactment of the 100% 2025-26 Budget Act in June 2025, Uninsured Congress enacted H.R. 1 in July. Among 80 other areas, H.R. 1 makes several Private Coverage 60 significant changes to federal Medicaid and marketplace policy, many of which 40 are intended to reduce federal costs. Public Coverage In addition, federal actions outside of 20 H.R. 1 also affect California’s health coverage landscape, particularly 2010 2012 2014 2016 2018 2020 2022 2024 Covered California. As Figure 6 shows, many of these changes also are scheduled to take effect over time. 8 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT Figure 6 Numerous Medi-Cal Policy Changes Are Forthcoming Effective Dates of Key State Budget Solutions and Federal Policy Changes Federal Policy Change State Budget Solution Federal Policy Change (H.R. 1) (2025-26 Budget Act) (Other) Start of reductions End of long-term to certain existing care payment payments Financing Changes in Medi-Cal New provider tax End of dental Start of lower rules and limit on supplemental provider tax certain new payment revenue limit payments Changes Affecting Medi-Cal Adults Asset limit Community New cost reinstatement engagement and sharing redetermination requirement requirements Certain benefit and payment Changes reductions Affecting Persons With UIS Undocumented Lower federal Monthly enrollment match and premium freeze expanded UIS definition Pharmacy-related savings Other Medi-Cal Changes Prohibition on Prior authorization Long-term care certain family for hospice home equity limit planning providers Covered California Changes Marketplace New proposed Pre-enrollment enrollment and income verification and verification verifications shorter tax-filing changes grace period July August January July October January July October January October 2025 2025 2025 2026 2026 2027 2027 2027 2028 2028 Note: Some dates could be delayed, pursuant to forthcoming federal guidance. UIS = unsatisfactory immigration status. www.lao.ca.gov 9 analysis full AN LAO REPORT EFFECTS OF CHANGING LANDSCAPE In this section, we analyze the effects of the Estimating the number of exempt adults is changing landscape on health coverage, hospitals somewhat imprecise due to data limitations. and clinics, private health insurance, and counties. There also is uncertainty because a key exemption As we describe in several boxes throughout the is based on counties’ unemployment rates, which section, these effects reflect projections using vary over time. That said, we estimate that around available data and existing literature. 1 million to 2 million childless adults could be exempt, leaving about 3 million to 4 million subject Effects on Health Coverage to the work requirements. H.R. 1 Includes Two Key Changes Affecting …Likely Resulting in Many Disenrollments Medicaid Eligibility for Childless Adults. As part From Medi-Cal. Both the work and six-month of H.R. 1, childless adults face two key eligibility renewal requirements will result in fewer people changes, both effective January 2027: enrolled in Medi-Cal. The size of this effect is • Work Requirements. Childless adults will now uncertain, particularly for the work requirements. need to work (or attend school or complete As we noted in our 2025 report on the changing community service) to remain eligible for landscape, previous Medicaid and food assistance Medi-Cal. The requirement is 80 hours per work requirements have not been found to induce month (or a dollar equivalent based on the work. Based on this, we infer that most of the federal minimum wage). Beneficiaries will have people who do not meet the requirements today to demonstrate compliance in the month before enrolling Figure 7 (for new enrollees) or in at least one month since their H.R. 1 Has Several Exemptions to the last renewal (for existing Work Requirements enrollees). As Figure 7 Exemptions Under H.R. 1 shows, H.R. 1 mandatorily exempts certain adults from Required Exemptions these requirements, and • CalWORKs and CalFresh participants who already comply with program work requirements. states can adopt certain • Foster youth, or former foster youth 25 years old or younger meeting certain additional exemptions. conditions. • Six-Month Renewal. • Incarcerated or recently incarcerated people. Childless adults will have to • Members of a tribe. renew their eligibility every • Parents of children 13 years old or younger. six months, rather than • Participants in substance use disorder programs. every 12 months as under • People with disabilities.a pre-H.R. 1 rules. • Pregnant woman and persons entitled to postpartum assistance. • Veterans with disabilities. H.R. 1 Eligibility Changes Will Apply to a Few Million Optional Exemptions (to Be Decided by State) Enrollees… Currently, nearly • People in inpatient care and certain high-acuity outpatient care. • People requiring extensive travel to treat serious medical conditions. 5 million childless adults are • Residents in an area declared to be in an emergency or disaster by the President. enrolled in Medi-Cal. All will be • Residents in high unemployment counties.b subject to the six-month renewal a Includes physical, intellectual, and developmental disabilities; complex medical conditions; requirement, but some will not be substance use disorders; and disabling mental health disorders. subject to the work requirements. b Specifically counties with unemployment rates at least at 1.5 times the national average or 8 percent. This is because some enrollees will fall under H.R. 1’s exemptions. 10 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT probably will disenroll from Medi-Cal (rather than • Marketplace Rules. In 2025, the federal find work and stay enrolled) once the requirements government finalized several marketplace become effective. Research also suggests that rules affecting eligibility, enrollment, and some beneficiaries who work enough hours will subsidy administration. While some changes nonetheless disenroll due to the higher burden took effect in August 2025, others have been of proving eligibility. This latter effect is far more blocked by litigation and reproposed for plan uncertain and depends on the way that the state years 2027 or 2028. The reproposed rules will implement the new requirements. Based on the generally require additional income verification best available evidence and data, we project that in some cases and increase the risk of losing nearly 2 million people will be disenrolled by the premium subsidies due to noncompliance. end of 2030. As Figure 8 shows, this disenrollment Covered California has estimated up to will notably reduce childless adult caseload 400,000 to 500,000 people could leave the state in Medi-Cal. marketplace as a result of these changes. People Also Will Leave Covered California Most Disenrolled People Likely Will Become Plans, Primarily Due to Three Policy Changes. Uninsured. Many people who disenroll from Access to Covered California, the state’s individual Medi-Cal and subsidized Covered California health insurance marketplace, also is expected coverage likely will become uninsured, with a to tighten under the changing federal landscape. relatively smaller share potentially accessing other Three key policies are likely to reduce enrollment: kinds of coverage. This is because disenrolled • End of Enhanced Premium Subsidies. people will face key barriers accessing other kinds During the pandemic, the federal of coverage. With regard to Medi-Cal enrollees, government temporarily increased premium those losing coverage due to the new work subsidies and expanded eligibility for them. requirements likely will not be working enough These enhancements were extended through hours to have access to employer-sponsored the end of 2025, but Congress allowed them insurance. H.R. 1 also bars these individuals from to expire thereafter. As a result, beginning accessing federally subsidized coverage in Covered in 2026, households above 400 percent of California. Most of those who leave Covered the federal poverty level no longer qualify for California will earn too much income to qualify for premium assistance, and some households Medi-Cal. As Figure 9 on the next page shows, that remain eligible receive smaller subsidies. we estimate the uninsured rate could roughly • H.R. 1 Provisions. H.R. 1 makes several changes Figure 8 affecting both access to premium subsidies and H.R. 1 Will Notably Reduce Childless Adult marketplace enrollment Caseload in Medi-Cal processes. Most notably, Average Monthly Caseload, LAO Projections beginning in 2027, the law limits premium subsidies 5,000,000 Without H.R. 1 for lawfully present 4,000,000 immigrants to a smaller set of immigration categories. 3,000,000 With H.R. 1 Beginning in 2028, it also 2,000,000 requires marketplace 1,000,000 exchanges to verify applicant eligibility before 2025 2026 2027 2028 2029 2030 applicants can receive premium subsidies. www.lao.ca.gov 11 analysis full AN LAO REPORT double compared to current levels, with most of Policies Likely Will Reduce Coverage for the increase from people leaving Medi-Cal. (The Millions of Adults. Both policies likely will result nearby box provides more information on how we in fewer adults with UIS enrolled in comprehensive came to this projection.) We project these elevated coverage, and therefore more adults with uninsured rates would remain below pre-ACA levels. emergency coverage only. The magnitude of Two Key State Actions Also Will Limit Scope this effect, however, is uncertain. In particular, it of Coverage for Certain Immigrant Groups. is uncertain how many adults will be unable or Recent state actions also will affect Medi-Cal unwilling to pay the new premium. As Figure 10 coverage for people deemed to have unsatisfactory shows, based on existing data and literature, immigration status (UIS). This population primarily we project 1.3 million adults with UIS will leave consists of undocumented immigrants, though comprehensive Medi-Cal coverage by 2030 due to other groups also fall under the state actions. definition. Federal cost sharing for this group is only available for Figure 9 emergency coverage, with the California’s Uninsured Rate Likely Will state covering most of the cost Rise Due to State and Federal Policy Changes of the remaining services. Two state policy changes, however, will Percent of Californians Without Health Coverage, LAO Projections notably scale back this population’s 16% access to comprehensive Medi-Cal coverage: 14 • Undocumented Expansion 12 Freeze. Beginning in 10 With Changes January 2026, newly eligible 8 undocumented adults are 6 barred from enrolling in Without Policy Changes comprehensive Medi-Cal 4 coverage. Those with 2 preexisting comprehensive coverage will continue to 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 be covered so long as they maintain eligibility. Note: Excludes people with emergency-only coverage in Medi-Cal. • Monthly Premium. Beginning in July 2027, many adults with Figure 10 UIS will have to pay a $30 monthly premium to remain Many Adults With UIS Will Leave Comprehensive eligible for comprehensive Medi-Cal Coverage as a Result of Freeze and Premium Medi-Cal coverage. Average Monthly Caseload, LAO Projections Individuals who do not comply with these requirements will be 2,000,000 Before Policy Changes limited to emergency coverage in 1,500,000 Medi-Cal—making them technically 1,000,000 insured, but with a narrower set After Policy Changes of benefits. 500,000 2025 2026 2027 2028 2029 2030 UIS = unsatisfactory immigration status. 12 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT How Do We Project Medi-Cal Disenrollments, Covered California Departures, and the Uninsured Population Under the Changing Landscape? For Medi-Cal Disenrollments, Consider Employment Trends. Based on our review of the American Community Survey, we estimate around 23 percent of childless adults who would otherwise be eligible for Medi-Cal would not meet H.R. 1’s new work or education requirements. Given evidence that work requirements generally do not lead to increased employment, we assume this population either disenrolls from Medi-Cal or does not newly enroll beginning in 2027. We also assume another smaller share of childless adults (around 3 percent) loses or fails to obtain coverage due to the heightened administrative burden of proving eligibility. For Covered California Departures, Build From State Projections. Covered California has conducted its own multiyear modeling on health plan enrollment changes due to policy changes. Generally, these models estimate around 400,000-500,000 people leave the marketplace by 2030. Accordingly, we build our projections from Covered California’s modeling, resulting in a similar level of disenrollment over the time period. For the Uninsured Population, Project Based on Recent Studies. Previous H.R. 1 analyses, such as those conducted by the Congressional Budget Office, generally project that most people who leave Medicaid due to policy changes will become uninsured. This is because of the many barriers these people will face accessing private health insurance. As a rough estimate, we assume 90 percent of projected disenrolled Medi-Cal adults become uninsured. For those who leave Covered California, recent modeling from the Urban Institute suggests a smaller proportion—around half—become uninsured. This population is more likely to obtain other kinds of private insurance than those leaving Medi-Cal because they are higher income. A recent Kaiser Family Foundation survey also found that younger adults were likelier to be uninsured than older adults. We apply the results of these studies to project how many disenrolled adults become uninsured. Projections Are Uncertain. Our population projections reflect our best understanding of the evidence on the effects of recent policy changes. They are subject to considerable uncertainty, however. For example, California’s efforts to minimize the administrative burden around the work requirements could be more or less successful than we assume, notably affecting how many people disenroll from Medi-Cal. Effects on Hospitals and Clinics Loss of Coverage Will Have Uncertain Effect on Utilization… Because gaining Medi-Cal Service Utilization Has Risen and Fallen Over coverage tends to be associated with more service Time. Hospital and clinic utilization has changed utilization, loss of this coverage could cause over time. As Figure 11 on the next page shows, hospital and clinic utilization to fall. The magnitude some services, such as hospital emergency room of this effect is uncertain, however. This is because visits, increased following full implementation of the the utilization patterns of those who previously had ACA in 2014. The rise in utilization likely stemmed coverage but then become uninsured is unknown. from more people gaining Medi-Cal and private It is possible, for example, that newly uninsured insurance coverage. As Figure 12 on the next childless adults could use more services than other page shows, Medi-Cal patients tend to use more populations that have never had insurance due services—including emergency room services— to more experience navigating the state’s health than uninsured people. Utilization continued to care system. (As we note in the box on page 15, rise over time, until it sharply fell in 2020 during however, utilization trends over the long term the pandemic. Since then, service use has are uncertain.) largely rebounded. www.lao.ca.gov 13 analysis full AN LAO REPORT by as much as a few billion Figure 11 dollars annually by 2030 due to disenrollments resulting from Hospital Utilization Generally Increased Following Medicaid and Covered California Medicaid Expansion, but Fell During Pandemic eligibility changes. Number of Visits in California …And Clinics. The concept of uncompensated care is not as 14,000,000 clearly defined or readily tracked Emergency 12,000,000 for clinics compared to hospitals. 10,000,000 We estimate, however, that clinics 8,000,000 collectively spend several hundred 6,000,000 Inpatient million dollars annually on care 4,000,000 to the uninsured, much of which 2,000,000 is free or discounted. The cost 2012 2014 2016 2018 2020 2022 2024 of this care likely will increase for clinics as well. (Certain clinics must provide care to the uninsured to qualify for federal financing Figure 12 arrangements.) Based on available data, we estimate the increase Uninsured Patients Tend to Use could be roughly up to $1 billion Fewer Services Than Those in Medi-Cal annually by 2030. Hospital Visits for Every 1,000 People in 2024, LAO Estimates On Net, Margins Likely Will Be Lower, Particularly 500 for Clinics. The dollar amount Inpatient Emergency Room Outpatient Surgery 450 of uncompensated care, on its 400 own, provides little information 350 about the overall financial health 300 of hospitals and clinics. This 250 is because uncompensated 200 care is only one component of 150 providers’ overall costs. A more 100 comprehensive measure of 50 financial health is a facility’s annual Medi-Cal Medicare Private Insurance Uninsured margins—the share of revenue providers earn after accounting for expenses. Generally, hospitals and clinics aim to have positive …But a Likely Increase in Uncompensated margins in most years to sustain operations Care at Hospitals… Research also suggests that and avoid deficits. Based on available data, we while loss of coverage could result in reduced estimate hospitals in aggregate could face margin health care utilization, a greater share of remaining reductions ranging from about 0.5 percentage services occur without payment to providers. In points to a couple percentage points due to the case of hospitals, this would result in more H.R. 1. The reduction in clinic margins probably free care (charity care) and unpaid charges (bad would be more notable; we estimate at least a debts)—together known as uncompensated care. In few percentage points decrease. There are two 2024, hospital uncompensated care was estimated reasons that clinics could face more significant to be a little over $2 billion. Based on available financial effects, both summarized by Figure 13. data, we estimate this amount could increase 14 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT How Do We Project Hospital and Clinic Utilization and Finances? Assume Current Utilization Trends. We assume today’s utilization patterns are indicative of patterns in the future. For example, in 2023, we estimate the Medi-Cal population has an average of 1.3 clinic visits, compared to 1.2 visits for each uninsured person. We hold these amounts constant over time. (For hospitals, where service utilization has somewhat varied over time, we roughly carry forward current trends into the future.) We also assume that every newly uninsured person has the same utilization patterns as today’s uninsured person. Thus, changes in the number of services per person reflect shifts in coverage, with uninsured populations using fewer services per person than groups with coverage. Project Net Revenue and Costs for Services. We assume revenues and costs per service follow past growth trends, according to hospital and clinic financial data from the Department of Health Care Access and Information. Projections Have Two Key Uncertainties. Though we aimed to ground our analysis in the best available data, there are two key uncertainties with our approach: • Future Utilization Trends. Today’s utilization patterns might not reflect future patterns among those who become uninsured. On the one hand, at least some newly uninsured childless adults—who are currently enrolled in Medi-Cal—will have had experience interacting with the state’s health care system. This experience could influence their future behavior, potentially causing them to use more services once uninsured than we assume. On the other hand, those who become disenrolled may be lower acuity than the typical uninsured or Medi-Cal patient, resulting in lower utilization than we assume. • Future Revenues and Costs. Recent years may not be good indicators of future revenue and cost trends. For example, hospitals and clinics have recently grown nonclinical revenue, such as government grants, donations, and investment income. These future trends are uncertain. Also, the state’s Office of Health Care Affordability has recently set health care spending targets aimed at slowing growth in overall spending. This policy could result in slower hospital and clinic cost growth relative to past years. First, clinics’ operating revenues are much smaller Figure 13 on average than hospitals, providing them with less capacity to absorb sizable cost increases. Second, Clinics Are Smaller Than Hospitals and clinics tend to rely more heavily on Medi-Cal Rely More on Medi-Cal Reimbursement funding as a share of total revenues than hospitals, Operating Revenue in 2023 making them particularly susceptible to changes in Medi-Cal utilization and reimbursement. State Coverage Reductions for Adults With UIS Could Compound Effects of H.R. 1… The above effects do not consider coverage losses Clinics in Medi-Cal for adults with UIS due to state $9.6 Billion Hospitals actions. Individuals who fail to find alternative $149 Billion comprehensive coverage will generally have no coverage for services delivered at hospitals and Medi-Cal clinics, unless they receive emergency care. Given the number of people potentially losing comprehensive Medi-Cal coverage, hospitals and clinics could face additional uncompensated care and reductions to their margins. www.lao.ca.gov 15 analysis full AN LAO REPORT …But Magnitude Is Uncertain. While there Effect of Financing Changes is More likely will be added cost pressures on hospitals and Uncertain. These financing changes likely will clinics from adults with UIS losing comprehensive result in additional losses for hospitals and clinics. Medi-Cal coverage, the magnitude of this effect is The exact size of these losses, however, is difficult uncertain. This is because it is difficult to project to project because of limited data. Most notably, this population’s utilization patterns. Research has we are not aware of consistent data comparing generally found that undocumented immigrants hospital Medi-Cal payments to Medicare. Even if on average use less health care than citizens and better information were available, guidance from other immigrant groups, largely because they federal administrators on the new hospital payment tend to be younger and face certain barriers to limit is still forthcoming. The Department of Finance accessing care, such as language barriers and has provided more concrete projections around immigration-related concerns. That said, the the UIS-related change for clinics, estimating the state’s recent expansions of Medi-Cal coverage for associated state savings—and cost to clinics—at undocumented immigrants appear to cost notably around $1 billion annually. Limited data, however, more than initial estimates, in part because the prevent us from independently assessing state underestimated this population’s utilization this estimate. of services. Many Financing Losses Will Reflect Missed Three Key Financing Changes Likely Will Opportunities, Rather Than Reductions to Reduce Medi-Cal Reimbursements. In addition Current Operations. Though financing changes to serving fewer Medi-Cal patients, hospitals will result in reduced reimbursements to providers and clinics also will face certain reductions in in the future, many of these changes will reflect Medi-Cal reimbursements due to federal and state missed opportunities, rather than direct reductions policy changes: to current operations. This is because many of the financing changes will overturn recently enacted or • Lower Managed Care Payments to expected increases in funding. For example, as we Hospitals. Under H.R. 1, California will have noted in our 2025 report, the state likely will need to reduce certain payments to hospitals so to reduce two key provider taxes—a tax on health that their overall reimbursement in Medi-Cal plans and a fee on private hospitals—to comply with managed care is no greater than what the new limit under H.R. 1. These taxes help pay for Medicare pays. Previously, this limit was set rate increases to hospitals. In the case of the health at the average rate paid by commercial health plan tax, however, hospitals only began receiving plans, which tend to pay higher rates than such increases in 2025. In the short run, it appears Medicare. States must begin ratcheting down the state will still be able to charge a similarly sized their provider payments over time beginning in private hospital fee, rather than pursue a notable January 2028. increase in 2025. • Lower Rates to Clinics for Services Margin Reductions Could Be Difficult for Provided to Adults With UIS. Medi-Cal pays Some Hospitals and Clinics to Manage— safety net clinics for each visit from a Medi-Cal Though Risk Is Uncertain. The degree to which beneficiary. Each clinic’s rate is set based on reductions in margins pose serious operational its reported costs. As a budget solution, the risks to hospitals and clinics is uncertain and state will reduce these rates for visits from could vary across individual facilities. As Figure 14 adult Medi-Cal enrollees with UIS beginning in shows, provider margins are quite volatile year to July 2026. year and difficult to predict. Even without H.R. 1 • Lower Provider Taxes. Under H.R. 1, the in effect, margins have tended to swing by as state will need to reduce certain taxes on much as several percentage points year to year. private hospitals and health plans used to That said, these trends are aggregate estimates, help support Medi-Cal. These charges also with some facilities facing operating losses while help support rate increases for hospitals others are profitable. For context, in 2022 when and clinics. several hospitals faced financial distress, aggregate margins fell to less than 1 percent. 16 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT • Absorb the Costs. Figure 14 Hospitals and clinics with ample margins today Hospital and Clinic Margins Vary Considerably Year to Year may accept having lower Percent of Revenue Earned After Expenses margins in the future without adjusting their operations. 10% 9 • Cost Shift to Other Hospitals Clinics 8 Payors. Some providers 7 might try to make up costs 6 by negotiating higher 5 rates from other payors, 4 such as private insurance 3 and Medi-Cal managed 2 care plans. Their ability 1 to do so, however, is 2018 2019 2020 2021 2022 2023 uncertain. Research suggests that market power largely determines rate Impacts Likely Will Be Greater for Certain negotiations, with some Kinds of Hospitals and Clinics. Looking at larger providers having substantial leverage financial pressures in aggregate can mask and others having very little. In fact, providers important institution-specific effects. Some with less market power might seek to obtain providers, particularly those primarily serving more private insurance contracts by reducing patients with private insurance, may see relatively rates to be more competitive when bidding limited effects from these changes. In contrast, for contracts. providers serving larger numbers of Medi-Cal • Grow Other Revenues. Many hospitals and uninsured patients likely will experience more and clinics do not balance their budgets notable effects. For example, numerous hospitals solely from clinical revenues. They rely on and clinics are considered “safety net,” meaning other revenues, such as government grants that they serve a disproportionate number of and contracts, private donations, and low-income and uninsured patients and thus incur investment returns to make up the difference. a large share of the state’s uncompensated care. Some providers may seek to expand these One recent study estimated safety net hospitals alternative sources to the extent feasible. could face an additional 0.5 percentage point • Reduce Spending. Hospitals and clinics to 1 percentage point reduction in their margins might aim to control costs, such as by relative to the aggregate averages for all hospitals. limiting compensation growth or eliminating Public hospitals also could face heightened less financially feasible services. Hospitals pressures given their specific financing situation in and clinics might also defer facility and Medi-Cal. (The box on the next page provides more infrastructure maintenance and renewals. information on public hospitals.) • Consolidate. Some hospitals and clinics may Hospitals and Clinics Could Pursue Six Key seek to consolidate into larger health systems Approaches to Manage Higher Costs. The above to better absorb costs. effects are hypothetical, assuming recent utilization • Close. Hospitals and clinics that cannot patterns and financing trends continue into the sustain operations over the long term future. In reality, hospitals and clinics could respond might close. to financial pressures in various ways, pursuing one or more of the following six potential strategies: www.lao.ca.gov 17 analysis full AN LAO REPORT How Will the Changing Landscape Affect Public Hospitals? Public Hospitals Have Somewhat Different Financing Approaches in Medi-Cal. Public hospitals—those owned by the University of California (UC), counties, and local health care districts—have different financing arrangements than their private counterparts. Generally, public hospitals tend to fund a greater portion of the nonfederal share of Medi-Cal costs using their own local contributions, such as from local funds or funds from other payors. These hospitals also tend to serve more Medi-Cal and uninsured patients than private hospitals, though there is considerable variation. As a result, as the nearby figure shows, public hospital margins tend to be lower than at private hospitals. Changing Landscape for Public Hospitals Different in Two Key Ways. Public hospitals will share many of the same fiscal changes as their private counterparts under the changing landscape. Two key dynamics, however, will be unique to public hospitals: • Temporarily Higher Directed Payments. Prior to Congress enacting H.R. 1, the state sought federal approval for sizable increases to hospital Medi-Cal directed payments in 2025 relative to past years. Following H.R. 1’s enactment, the payment increases to private hospitals cannot occur, as they would have been supported by the larger private hospital fee. However, the increased public hospital payments received federal approval prior to H.R. 1 because they are funded by local contributions, rather than provider taxes. These increases will be temporary, as they will need to be reduced over time to comply with the new Medicare limit. • Additional Costs to Backfill Federal Funding Reductions. Some H.R. 1 changes do not directly affect most hospitals, but instead require a backfill from the state General Fund. For example, H.R. 1 reduces the Public Hospitals Tend to federal share of cost for emergency Have Smaller Margins Than Private Ones care to certain Aggregate Hospital Margins immigrant groups. As an exception, 10% however, UC and Private 5 county hospitals will have to backfill the lost federal funding themselves. This is -5 Public because they use -10 local contributions to fund the nonfederal -15 2017 2018 2019 2020 2021 2022 2023 2024 share of cost of these services. 18 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT Effects on Private Health Insurance time are expected to be healthier than the average enrollee. This is because healthier individuals are Some Evidence Suggests ACA Limited more sensitive to changes in health care costs, Private Premium Growth. As Figure 15 shows, such as reductions in subsidies. These departures employer-sponsored and Covered California will mean a relatively riskier and costlier population premium costs have tended to increase faster remains enrolled in Covered California, resulting than inflation, with particularly noteworthy in higher gross premiums (before netting out increases in some years. (These trends reflect federal and state subsidies). The exact impacts are broad averages, with likely considerable variation uncertain and still being assessed by health plans among individual health plans.) In the initial years and the state. In 2026, health plan premiums in the following implementation of the ACA, growth for exchange increased by over 10 percent relative employer-sponsored health insurance (which to 2025. Initial data suggest around 2 percentage comprises around 90 percent of all private health points of this growth specifically is due to enrollees insurance coverage) appears to have been leaving as a result of the end of the enhanced somewhat lower than in previous years. This trend federal subsidies. aligns with research suggesting that the ACA helped slow cost growth in the private insurance Covered California Enrollees Will Pay More market. This is primarily because less costly Costs Out of Pocket. For enrollees who remain populations became covered by private insurance, in the marketplace, many—particularly those who lowering the overall risk pool by including healthier benefited from the enhanced subsidies—will pay individuals who used fewer services. That said, higher costs out of pocket. Although California annual health premium growth has been notable has adopted a state premium subsidy for enrollees in more recent years, sometimes exceeding earning up to 165 percent of the federal poverty 10 percent. level, other households with incomes below 250 percent of the federal poverty level have Covered California Departures Will Put experienced a 60 percent to 70 percent growth Upward Pressure on Individual Premiums. in net premiums in 2026. Some enrollees may Generally, those who leave Covered California over manage these costs by enrolling in lower-premium health plans. Figure 15 These plans, however, tend to include higher cost sharing, Private Health Insurance Premiums Tend to such as deductibles, copays, Increase Faster Than Inflation and coinsurance. For example, Annual Change enrollees in “bronze” plans—among the lowest-premium plans available 14% Covered California Premiumsb in Covered California—paid about 12 $1,200 in cost sharing on average 10 Employer-Sponsored Premiumsa in 2024, nearly double the amount 8 enrollees paid in the more generous “silver” plan. 6 4 Departures Could Also Affect Costs Among Other Private 2 Inflationc Insurance Plans. Some people who leave Covered California -2 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 may find other kinds of private a Reflects average growth in total premium costs for single employees in California, as measured by the Medical health insurance coverage, such Expenditure Panel Survey. Employers and employees share these costs. as through their employer or by b Reflects average growth in gross premium costs. Some of these costs are covered by federal subsidies, with the purchasing it themselves outside remainder generally paid by consumers. c Reflects growth in personal consumption expenditures price index. of the exchange. To the extent www.lao.ca.gov 19 analysis full AN LAO REPORT that these individuals are relatively healthy, they the primary source of support for county indigent could improve the risk pools and reduce average care programs. Under this arrangement, counties per-enrollee costs of other private health plans. now receive a dedicated portion of sales tax and This effect is uncertain, however. vehicle license fee revenue to support certain health Rise in Uncompensated Care Also Could and human service programs, including indigent Affect Premiums. Private health insurance health care. The funds flow to different accounts costs also could be affected by the increase in using a complex formula (see the nearby box for uncompensated care and reduction in provider more information). One account, known as the reimbursements. For example, providers could try Health Subaccount, specifically supports county to negotiate higher rates with private plans to help indigent care, as well as public health activities. manage losses. On the other hand, some providers Prior to H.R. 1, County Indigent Programs may negotiate lower rates with private health plans Notably Ramped Down… When the state to encourage more contracts and increase the implemented the ACA, many uninsured, childless volume of care. These effects are uncertain and adults shifted from county indigent health care difficult to predict. programs to Medi-Cal coverage. This resulted in a substantial reduction in county indigent caseloads. Effects on County Based on conversations with counties, we estimate Indigent Health Care Programs that around 10,000 people are currently enrolled Counties Primarily Rely on Realignment in these programs statewide, down from around Revenue to Fund Indigent Care. Funding sources 850,000 before the passage of the ACA. for county indigent care programs have varied over …And the State Redirected Substantial time. Prior to the 1990s, counties largely relied Realignment Funds. The reduction in indigent on General Fund support provided by the state. caseloads following the ACA resulted in numerous This arrangement changed as part of a substantial changes to county programs. Most notably, the realignment of state and local programmatic and state redirected a portion of funds from the Health fiscal responsibilities in 1991—known as 1991 Subaccount to help offset state General Fund realignment. 1991 realignment has since become How Does Realignment Funding for County Indigent Health Work? Funds Are First Allocated to Base Amount. Under the 1991 realignment formula, a portion of sales tax and vehicle license fee funds are allocated among various subaccounts that support certain county health and social service programs. The Health Subaccount supports county indigent health and public health programs. Each subaccount receives a minimum “base” amount of funds each year, which generally reflects the previous year’s total allocation. Then, Growth Is Allocated. After funding the base amount, any remaining revenue is allocated to fund program cost growth. Certain social service programs get first priority for growth funds based on any increases in program caseloads. A portion (around 20 percent) of any remaining funds is then allocated to the Health Subaccount to fund indigent health and public health programs. The other around 80 percent of the remaining funds are allocated for mental health and certain other social services. Portion Is Redirected Back to CalWORKs. Pursuant to Chapter 24 of 2013 (AB 85, Committee on Budget), a portion of health realignment funds are redirected back to the state to help fund the California Work Opportunity and Responsibility to Kids (CalWORKs) program. Most counties calculate their redirection amount as a fixed share of their realignment funds based on past allocations. As allowed in the statute, some counties have opted to calculate the amount based in part on reported health program costs. 20 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT costs in the California Work Opportunity and Costs Could Exceed Existing Resources, Responsibility to Kids (CalWORKs) program. This but Are Difficult to Pinpoint. Counties likely redirection was intended to reflect notably smaller will face significant costs to grow their indigent county indigent programs due to the ACA. In care programs to meet some of the demand from addition, some counties have made their indigent the newly uninsured. The cost is uncertain and programs’ eligibility criteria more expansive or depends on the number of users as well as the benefits more generous given the low number average cost of services, both of which could vary of enrollees. significantly based on each county’s decisions Rise in Uninsured Could Have Significant around program parameters. Based on limited Effect on County Indigent Program Caseloads. information, we estimate costs across all counties With the uninsured population effectively doubling, could be up to the low billions of dollars. By county indigent programs likely will experience comparison, the Health Subaccount today provides significant pressure to provide services for an around $1 billion, most of which counties use to expanded population. The number of people support public health services. the counties will serve is uncertain. From limited Counties Could Pursue Some Strategies to information prior to the ACA, it appears that around Mitigate Cost Pressures. With cost pressures 20 percent of the uninsured population participated exceeding available realignment resources, in county programs. Applying this 20 percent counties likely will explore ways to limit their assumption to our projected uninsured population exposure. Most notably, counties can tighten their in 2030 yields a caseload increase of around eligibility and benefit rules for indigent programs, 400,000 people. However, participation could be serving fewer people at a lower cost per person. higher. This is because people disenrolled from Stakeholders have anecdotally noted that some Medi-Cal may have more experience with accessing county boards are currently weighing such actions. health care compared to other uninsured groups. Counties also could explore raising more revenue, Our estimates of indigent caseload are particularly though they face certain limitations to do so. sensitive to assumed participation levels among For example, counties must gain voter approval the newly uninsured. For example, assuming a to levy new taxes or increase existing taxes. State 50 percent participation rate yields nearly 1 million law also limits the types of taxes local governments more people in indigent programs by 2030. can raise. ISSUES TO CONSIDER As the Legislature considers the implications many assumptions compounding each other, of H.R. 1 and other policy changes on the actual effects could be notably different from what state’s health care system, we recommend we estimate. weighing different actions in the short term State Has Limited Ongoing Fiscal Capacity. (this year’s budget process) and the long term As we have noted in other publications, California (over future years). We describe these different is facing projected structural budget deficits. considerations below. This means that the state has no fiscal capacity for new ongoing commitments, absent making Short-Term Issues reductions in other areas or raising new revenues. Impacts of H.R. 1 Are Uncertain. The estimates Moreover, projected deficits occur despite recent described above are subject to considerable growth in state revenues from the stock market. uncertainty. As a result, our projections make Were the state to experience an economic numerous assumptions about health coverage downturn in the coming years, the Legislature could disenrollments, the uninsured population, health face an even larger budget imbalance. care utilization, and health care costs. With so www.lao.ca.gov 21 analysis full AN LAO REPORT Recommend Bolstering Legislative health care landscape. While much of the ACA Oversight… With so much uncertainty and limited remains in place, the state’s health care system ongoing fiscal capacity, it would be prudent for faces an increase in uninsured residents in the the Legislature to begin tracking the effects of coming years. As such, the Legislature may want to federal and state policy changes before taking reexamine key issues in the health care landscape, significant action to restructure programs. To this described below. end, we recommend the Legislature focus this Should the Legislature Tighten or Loosen year’s budget process on bolstering oversight Requirements on Providers and Counties? regarding the effects on hospitals, clinics, and Federal and state law place requirements on certain counties. While financial data already exist for hospitals and clinics to provide services to uninsured hospitals and clinics, in-depth and timely analysis populations, such as by offering charity care and of the fiscal effects of upcoming policy changes discounted services. State law also requires counties would be valuable. Data on county programs, by to provide care to the uninsured but grants counties contrast, is less robust and not publicly reported substantial flexibility to determine eligibility and on a regular basis. As a result, projections are benefits. With so many people estimated to become often dependent on limited information provided by uninsured, the Legislature could revisit these counties and their associations. Moreover, some expectations. For example, it could bolster state key Medi-Cal information, such as how Medi-Cal requirements, such as by mandating more consistent hospital payments compare to Medicare, are not service levels for counties or expanding charity publicly available. The Legislature could enhance care requirements for hospitals and clinics. (The its oversight by directing the Department of Health Legislature likely would have to directly reimburse Care Access and Information (which compiles data counties for any new requirements, pursuant to the on hospitals and clinics) and Department of Health California Constitution.) Alternatively, the Legislature Care Services (which has broad responsibility for could loosen certain state requirements, affording ensuring access to health care for low-income providers and counties more flexibility to manage populations) to gather information on provider cost pressures according to local considerations. and county finances, as well as county indigent Should the Legislature Restructure Existing program caseloads. Financing Arrangements? The Legislature …And Focusing on Limited-Term, Targeted also could explore whether to revisit some of the Financial Assistance. The Legislature also could state’s health care financing arrangements. Most explore providing targeted, limited-term financial notably, it could explore whether to restructure assistance to providers and counties particularly at the 1991 realignment funding approach for county risk of distress in the near future. For example, the indigent health programs. As Figure 16 shows, we Legislature could explore renewing and expanding the Distressed Figure 16 Hospital Loan Program, which assessed need based on factors State Redirects Substantial Realignment Funding such as a hospital’s cash on From County Health Programs hand, margins, and community 1991 Health Realignment Funds (In Billions) impact. The state could consider a similarly structured $3 program for county indigent programs and/or clinics. Without Redirection 2 Long-Term Issues Over the Long Term, 1 Structural Changes Could With Redirection Be Warranted. Barring future developments, recently enacted 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23 2024-25 2026-27 state and federal policy changes will significantly change California’s 22 LEGISLATIVE ANALYST’S OFFICE analysis full AN LAO REPORT estimate the state currently redirects $1.6 billion could explore whether to adjust the state’s complex in realignment health funds to help offset state Medi-Cal hospital financing structure, which places spending in CalWORKs. Sending these funds back a significant share of the cost of care on hospitals. to counties could help cover much of the cost for Such an effort could build upon the Department indigent care, but at a cost to the state to backfill of Health Care Services’ recent hospital finance support to CalWORKs. Similarly, the Legislature also reform initiative. CONCLUSION Health care consumers, providers, and payors of the ACA in 2014. Moreover, from an access in California will face heightened fiscal constraints standpoint, the state will still be in a better position as a result of the changing fiscal and policy than before 2014, with key elements of the ACA landscape. The circumstances of these constraints (such as the Covered California marketplace) still are not unprecedented, however—much of the intact. Keeping this broader context in mind, the new landscape likely will resemble conditions that Legislature, administration, providers, and counties existed more than a decade ago. This is because likely will need to work collaboratively to adjust these changes unwind some eligibility and financing policies, financing structures, and services to align changes that occurred after state implementation with the new landscape and fiscal realities. WORKS REFERENCED IN REPORT Previous LAO Reports Urban Institute. (2025.) 4.8 Million People Will Lose Coverage in 2026 If Enhanced Premium Tax • Considering Medi-Cal in the Midst Credits Expire. of a Changing Fiscal and Policy Kaiser Family Foundation. (2026.) Cost Landscape. (2025.) Concerns and Coverage Changes: A Follow-Up • The 2026-27 Budget: Medi-Cal Fiscal Survey of ACA Marketplace Enrollees. Outlook. (2026.) • The 2026-27 Budget: County Administration Hospital and Clinic Financing and H.R. 1 Implementation. (2026.) The Commonwealth Fund. (2025.) The Impact of • The 2026-27 Budget: Overview of the Proposed Federal Medicaid Work Requirements Governor’s Budget. (2026.) on Hospital Revenues and Financial Margins. Kaiser Family Foundation. (2025.) Key Facts on Projections of Uninsured Populations Health Coverage of Immigrants. Congressional Budget Office. (2025.) Estimated Department of Health Care Services. Value Effects on the Number of Uninsured People in Strategy for Hospital Payments in Medi-Cal 2034 Resulting From Policies Incorporated Within Managed Care. (2025-26 budget change proposal.) CBO’s Baseline Projections and H.R. 1, the One Big Beautiful Bill Act. www.lao.ca.gov 23 analysis full AN LAO REPORT LAO PUBLICATIONS This report was prepared by Min Lee, Will Owens, Karina Hendren, and Jason Constantouros, and reviewed by Mark C. Newton and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 24 LEGISLATIVE ANALYST’S OFFICE