Medi-Cal is California’s Medicaid program that provides health insurance coverage for low-income residents. It covers roughly 14 million Californians, about one in three residents. That includes more than 40 percent of the state’s children and 39 percent of births, plus a large share of nursing home care and behavioral health care.
With a budget of almost $200 billion in 2025–2026, Medi-Cal is the largest program in the state budget on a total fund basis.
It is simultaneously the state’s largest health program, one of its largest budget items, and the piece of California government most voters interact with while not knowing how it works.
Where does the money come from?
Medi-Cal comprises 40 percent of all state spending from all sources. The majority of funding comes from the federal government, but the state provides a sizable portion.
The state share of Medi-Cal funding comes from the General Fund, almost $45 billion in the 2025–2026 fiscal year, plus financing mechanisms like the tax on health insurance companies. The managed care organization tax applies to most California health insurance providers.
The federal government matches state spending, covering 50 percent of costs for the traditional Medicaid population and 90 percent of costs for those eligible under the Affordable Care Act expansion.
This matching structure is why federal policy changes, like the 2025 budget law H.R. 1, also known as the “One Big Beautiful Bill Act,” can affect the state’s budget.
More importantly, the fact that Medi-Cal accounts for an enormous share of state spending explains why every state budget crisis inevitably becomes a Medi-Cal cost debate with political negotiations over what services to keep.
Who actually runs Medi-Cal?
There are four layers of Medi-Cal administration.
- The federal Centers for Medicare and Medicaid Services sets rules on mandatory minimums for patient care.
- The state Department of Health Care Services sets policy, administers contracts, and provides payment to service providers.
- County offices determine patient eligibility and process Medi-Cal enrollment.
- Managed care plans deliver healthcare for most enrollees, almost 90 percent. These public and private insurers are paid a monthly rate for each enrollee subscribed to their plan.
In summary, rules, money, eligibility, and care delivery belong to four different sets of institutions.
This multilayered system of funding, policy setting, administration, and service provision means that when something goes wrong with Medi-Cal healthcare, the underlying issue from FAQ 8 applies: The official receiving the complaint often does not control the issue being complained about.
Who is covered and what does it cost?
Roughly 12 million Medi-Cal enrollees, or 88 percent, are children and low-income, working-age adults. This includes Affordable Care Act expansion enrollment.
However, the largest consumers of Medi-Cal spending are seniors and people with disabilities. These groups constitute about 18 percent of enrollment, but their average cost of care is more than double that of families and childless adults.
The average annual cost for a senior on Medi-Cal is about $15,000.
The most expensive group is the “dual eligibles”—the 1.8 million Californians who are enrolled in both Medicare and Medi-Cal. Medi-Cal pays for what Medicare does not, including long-term care. They are among the oldest and sickest enrollees, whose care often involves nursing home stays and in-home support.
These differences are the key to understanding Medi-Cal politics. Expanding who is covered, as California did for undocumented adults, adds many enrollees at a relatively low price per individual.
These smaller costs still add up, however. The estimated 1.7 million undocumented immigrants who are enrolled are expected to require $10 billion each year from California’s General Fund.
Meanwhile, much of Medi-Cal spending is dominated by a smaller, high-need population whose costs cannot be cut without reducing care for the frail and disabled.
What is changing right now?
Multiple reforms are occurring simultaneously. At the federal level, H.R. 1’s Medicaid reforms, which include work requirements, financing limits, and penalties for states that provide improper payments, will phase in over the next few years.
California has the largest exposure in the nation to the budgetary effects of these reforms, meaning that the state has to take action to avoid penalties that would decrease federal grants for Medicaid.
Meanwhile, the legislature recently took steps to slow the rising cost of Medi-Cal, which has exceeded projections. This includes freezing new enrollment for undocumented adults, adding insurance premiums, and trimming healthcare benefits.
Lastly, the November 2026 billionaire tax measure, Proposition 40, proposes an ostensible one-time tax earmarked to provide additional funding for Medi-Cal.
However, there is widespread disagreement about the effects of H.R. 1 on California’s budget and whether the additional tax revenue is truly needed, as well as whether the tax could actually reduce net tax revenue.
