California Medicaid Spending Offers Rich Environment for GOP Scrutiny

Congressional Republicans are seeking spending cuts to adhere to their new budget blueprint, and California’s Medi-Cal program is a target. It is likely that the federal government can decrease its support for the state’s version of Medicaid without compromising essential health care for low-income Americans in California.

The California Department of Health Care Services has a $193 billion budget for 2025-26, with an expected $119 billion coming from the federal government. Despite having only 12 percent of the national population, California is projected to receive more than one-sixth of all federal funds allocated to Medicaid (based on a Congressional Budget Office estimate of $656 billion in total program costs for 2025).

Medi-Cal has an estimated 1.6 million undocumented immigrant beneficiaries, constituting over 10 percent of program enrollment, according to CalMatters. Recent projections by state finance officials suggest that these benefits could cost California’s general fund $8.5 billion, surpassing initial forecasts.

As most Medi-Cal beneficiaries are in managed care arrangements, California typically does not bill the federal government for each emergency or pregnancy care encounter. Instead, it invoices federal Medicaid for a percentage of the capitation payments (i.e., insurance premiums) made to managed care providers. However, in 2024, California was found to have overcharged the federal government for capitation payments on behalf of noncitizens by $52.7 million and was required to reimburse it.

High Emergency Room Use by Homeless Individuals

California has a disproportionate number of homeless individuals, many of whom struggle with substance abuse problems. Some of these individuals frequently visit emergency rooms to address overdose effects.

Research identified a significant group of “frequent” ER users in San Francisco, making 4–17 visits annually, and “superfrequent” ER users with 18 or more visits per year, both predominantly homeless.

Although homeless individuals may not be enrolled in Medi-Cal when they visit the ER, California allows individuals to enroll in the program up to three months after receiving medical services, as long as they meet eligibility criteria at the time of service delivery.

According to the most recent available state data, homeless Medi-Cal beneficiaries made 419,000 emergency room visits in the 2021–2022 fiscal year.

Expanded Benefits for Seniors

Medicaid covers nursing home care or home-based alternatives for elderly individuals in need. States typically assess both income and asset tests to determine eligibility for Medicaid benefits.

As a result, enrollment of seniors in Medi-Cal has surged. The state’s Legislative Analyst estimates that 165,000 seniors have enrolled in Medi-Cal due to the expanded eligibility. With each beneficiary costing over $15,000 annually on average, the expansion is costing nearly $2.5 billion each year, split between the state and federal governments.

Reliance on Provider Taxes

Like many states, California levies taxes on medical providers to fund Medicaid services and attract federal matching funds. However, California’s use of provider taxes is particularly aggressive.

One notable practice involves taxing government-owned Medi-Cal managed care providers such as L.A. Care Health Plan, which serves 2.3 million beneficiaries. While government entities are typically exempt from taxes, they are being targeted in California to maximize federal funding.

Despite concerns raised by the Biden-era Department of Health and Human Services (HHS) about California’s managed care provider tax, the state was allowed to increase the tax in 2024 to address a budget shortfall. More recently, California voters approved Proposition 35, making the Medi-Cal Managed Care Provider tax permanent.

Supplemental Ambulance Payments

California negotiated a special agreement with the HHS to provide additional payments to local fire departments for emergency ambulance transportation services to Medi-Cal beneficiaries. The supplemental fee currently stands at $1,050 per ride, in addition to the base rate of $118 paid to private and public ambulance providers. This information was highlighted by Ryan Ellis, president of the Center for a Free Economy and a senior tax adviser at the Family Business Coalition, in a recent opinion article for the Washington Times. Ellis pointed out that these supplemental charges help California fire departments compensate uniformed personnel with salaries exceeding $200,000 annually, along with generous pension benefits.

Moreover, California has spearheaded an initiative in the Biden era to expand Medicaid coverage to include “social determinants of health,” which are non-medical factors affecting health outcomes. Federal waivers now permit Medi-Cal to cover up to six months of rent for homeless beneficiaries or those at risk, as well as expenses for sports equipment, music lessons, art classes, and therapeutic camps for children on Medi-Cal. Additionally, the state has introduced an extension to Medi-Cal tailored for “justice-involved individuals,” offering services to prison inmates up to 90 days before release.

California has devised various methods to secure increased federal Medicaid funding, benefiting illegal immigrants, medical and non-medical service providers, firefighters, and affluent seniors’ heirs. While the specifics of Medi-Cal spending remain largely undisclosed on the state’s fiscal transparency platform, independent researchers face challenges in pinpointing irregularities within this extensive program.

Efforts from a state-level Department of Government Efficiency could help unravel additional complexities and unnecessary spending within Medi-Cal. Even with the existing information, it is evident that reductions in federal Medicaid funding do not have to jeopardize healthcare for low-income Americans in California.

Please note that the views expressed in this article represent the author’s opinions and may not align with those of The Epoch Times.

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