California nears healthcare crisis as warnings go unnoticed

When Congress passed the big, ugly bill known as HR 1 last year, most Americans understood it meant cuts to Medicaid, the safety net programme millions rely on for medical insurance. But few Californians realised just how much it will affect the Golden State when its provisions really kick in, starting after the midterms (the Republicans aren’t that dumb) and continuing on in cascading cuts for the next few years.

Millions of Californians — not just low-income folks — are going to feel the effects, whether through a loss of insurance, fewer providers able to keep their doors open, or rising premiums and costs. “This problem trickles up,” state Senate leader Monique Limón, D-Goleta, told me. “This is not just going to impact the people that have a public healthcare plan. When you see a hospital close, when you see medical providers no longer being able to practice, it is absolutely going to impact everybody, the middle class included.”

Added to the loss of federal funds, Gov. Gavin Newsom’s most recent budget plan (which the Legislature has to debate in coming weeks) includes cuts at the state level. This is in part to contend with the loss of federal money, but also because healthcare costs keep rising and even in this wealthy state, we can’t afford the bills — at least not without some changes. What those changes are — and who should bear the brunt of them — is a complicated and largely ignored debate happening right now. While our candidates for governor have been grilled on whether they support single-payer healthcare or not, (Becerra is a sort-of, Steyer is a yes) the real question isn’t how is the next governor going to expand access to care — but how are we going to keep the whole system from collapsing right now.

“This is not hypothetical, this is what’s coming down the line,” Limón said.

About 15 million adults and children, or about 1 in 3 of our state’s residents, rely on Medi-Cal, which is what California calls its Medicaid programme. Through a creative bit of state financing called the Managed Care Organization, or MCO, tax, the federal government has been paying for a big chunk of the costs of that insurance, about $7 billion a year. President Donald Trump’s HR 1 makes that money go bye-bye by greatly reducing the MCO, leaving the state to figure out how to backfill that cash. And that’s just one of the ways the big, ugly bill hurts California. Yes, it’s complicated.

Newsom’s budget plan relies in a not-small way on restructuring the MCO tax to fit HR 1’s new rules. But here’s the problem with that — any fix will require approval from the Trump administration, which has repeatedly shown the welfare of Californians is not a high priority. In fact, the Trump administration in March rejected California’s request to update another fee related to hospitals that also generates billions for Medi-Cal. So maybe Newsom will be able to negotiate a plan that saves the MCO and California healthcare. But wouldn’t it be much better for the GOP, with a presidential election looming, to watch California (and her presidential-contender governor) tumble off a healthcare cliff? Few states rely on an MCO tax the way ours does, which means our pain is going to be far more visible and profound if we lose this funding.

That means if Newsom’s budget is approved by the state Legislature with the MCO fix, the state is taking a gamble. If the feds don’t approve some new version of the MCO tax, “it would have major implications,” Adriana Ramos-Yamamoto told me. She’s a senior policy fellow with the nonpartisan California Budget and Policy Center.

What’s the fourth-largest economy in the world to do? Limón would like to see the state stop subsidising corporations who pay so meagerly that their employees qualify for Medi-Cal. “We don’t have the luxury of being able to provide these tax subsidies,” Limón said. Turns out, 42% of Medi-Cal enrollees are full-time workers, according to a new report by the UC Berkeley Labor Center. Although most big corporations offer some sort of health insurance, it’s often tied to working a certain number of hours (which they then make sure not to schedule) or it has prohibitive costs or other barriers.

In 2022, the Labor Center found, 34% of low-wage workers received their health insurance through employers, compared with 69% of higher wage workers — meaning California is picking up insurance costs because low-wage employers are finding ways out of them. “Over the decades, Medi-Cal has really undergone a significant transformation. It’s shifted from a program that primarily served the disabled and indigent and elderly folks to one that largely supports folks that work in low-wage industries,” Tia Orr, the executive director of SEIU California, told me. “Medi-Cal has now become a program where folks that work every single day have to rely on it. The idea that someone can work every day and qualify for food stamps and Medi-Cal, it should be eye-opening to folks.” Right now, she points out, California taxpayers are paying about $7,800 a year for each person on Medi-Cal.