Funding the Medi-Cal Program

California’s uninsured rate has declined dramatically in the past few years. Much of the increase in health coverage has been the result of the state’s decision to expand Medi-Cal, its Medicaid program, under the Affordable Care Act. While the federal government has funded a large share of program growth, state costs have also risen. This cost growth, combined with major policy shifts still conceivable at the federal level, has created additional uncertainty about the future of Medi-Cal financing. As state lawmakers and other stakeholders plan for the future of the program, it is important to understand how Medi-Cal is currently financed and how it fits into California’s overall budget. This context is essential to any discussion of funding options.

• State spending on Medi-Cal has grown over the past decade, outpacing growth in state revenues. In recent years, the state has increasingly relied on sources beyond the General Fund to support the program.
• Still, Medi-Cal accounts for 15 percent of total General Fund expenditures (the second largest budget outlay after K-14 education), so the program is at the center of state budget discussions-particularly when revenues falter.
• There are many possible ways to generate additional funding that could support Medi-Cal. In exploring revenue options-including sin taxes, provider fees, and more general tax changes-it is important to assess how well they align with standard fiscal principles. The best funding sources are those that can provide consistent long-term funding that grows over time but also meet other important criteria, including progressivity, economic efficiency, and simplicity.
• If there are major policy changes at the federal level, the state will face difficult trade-offs related to expanding state funding for Medi-Cal, the scope of the current program or a successor program, and/or the repercussions of having many more uninsured Californians.

With the federal policy landscape still in flux, state discussions about the future of the Medi-Cal program will continue. Given the important role Medi-Cal plays in providing health coverage to such a large share of Californians-and some of our most vulnerable residents-it will be important to foster a wide-ranging discussion of options. Beyond the funding issues that are the focus of this report, the state and its residents need to decide what they want from the program and how these goals can best be achieved.