California’s 2026-27 Budget Preserves Most Medi-Cal Eligibility — and Braces for H.R. 1 Impact
July 23, 2026 | By Lillian Chen, MPP, MPH
Share This:
The state has wrapped up another fiscal year, with Governor Newsom signing the 2026-27 California budget — his last as governor — into law on June 29. With this enacted budget, the state walks back or delays some of the May Revise proposals, which will mitigate some of the potential coverage loss and allow more time for the Legislature to consider policy options.
Here are our top five takeaways from the new California budget:
1. The budget reinforces fiscal restraint
A consistent theme throughout this budget process has been fiscal prudence to safeguard against potential economic downturn:
- The final budget reflects a $351.7 billion state spending plan for 2026-27, including $251.1 billion General Fund, which is about $1.5 billion less than the legislative proposal.
- As with the May Revise, the final budget projects a balanced budget for the next two fiscal years. Of note, it reduces the future operating deficit estimated for 2029-30 by over $1 billion compared to the May Revise estimate.
- The budget codifies the administration’s revenue proposals to cap business tax credits, tax digital prewritten software, and revise and renew the managed care organization (MCO) tax. Collectively, these solutions are estimated to bring in about $5 billion ongoing.
- The state is setting aside $6.4 billion in a temporary surplus holding account to help balance the 2027-28 budget.
2. The budget delays several Medi-Cal policy changes and decisions
Asset limit test for seniors and people with disabilities: This will be unchanged until July 2027, at which time the limit will become stricter with asset limits of $21,000 for individuals and $31,000 for couples (should the Legislature not take any further action).
Unsatisfactory immigration status (UIS) population: Using state dollars to preserve coverage, benefit, and payment levels, the budget pushes back several changes to July 2027, including:
- Any increase in the $30 monthly premium enacted by the previous budget until at least the next budget year, at the discretion of the next governor.
- Shift of asylees and other immigrants with certain immigration statuses impacted by H.R. 1’s changes to federal eligibility of these groups as UIS (to go in effect October 2026) into restricted-scope Medi-Cal.
- Elimination of full-scope dental benefits for UIS adults.
- Elimination of state-only Prospective Payment System (PPS) rates for services provided to UIS individuals.
One major proposal from the May Revise for the UIS population that the final budget does adopt, in response to federal guidance, is the transition of this group from managed care to fee-for-service (FFS) Medi-Cal, to take effect Jan. 1, 2027. This affects two million individuals’ health care access and quality of care, as FFS typically does not support coordinated care. This population would also lose access to certain CalAIM services including Enhanced Care Management and Community Supports, which are only available to managed care members. To support this transition, the budget allocates $39 million for care coordination resources and navigators to assist members.
Large employer accountability: The final budget requires the Department of Finance to provide draft bill options by March 2027 for holding large employers financially accountable for the taxpayer costs of employees enrolled in Medi-Cal, unless the Medicaid-related provisions of H.R. 1 are repealed before then.
Should this become a new tax, it would serve as another revenue source for the state, which could help replace lower revenues from the MCO tax. Differing federal (H.R. 1) and state restrictions on how the MCO tax can be structured moving forward will result in lower revenues than previously generated.
3. The budget provides some resources to minimize coverage losses
Eligibility changes for Medi-Cal, as well as CalFresh (California’s SNAP program), resulting from H.R. 1 will have a major impact on the workload of county eligibility workers. County associations have estimated that nearly three million Medi-Cal enrollees and over 950,000 CalFresh recipients will be impacted by these changes. (Of note, this may now be an underestimate with the release of the interim final rule on Medicaid work and community engagement requirements of H.R. 1, which is stricter than the original statute in defining the medical frailty exemption.)
To support this additional workload, the final budget includes augmentations of $197 million for Medi-Cal and $223 million for CalFresh. This total goes beyond counties’ request of $300 million for 2026-27, though it remains to be seen whether there will be additional funding in the next budget year. The budget also sets aside $2 million for an H.R. 1 Navigators for Clinics Program to support Medi-Cal outreach and enrollment.
The budget also includes $300 million to support increased subsidies for consumers to buy coverage through Covered California, the state’s health insurance marketplace, in response to the expiration of enhanced premium tax credits at the end of last year.
4. The budget does not address health care for the uninsured
Counties are legally required to provide basic, medically necessary health care for uninsured residents, known as indigent care. However, the budget does not provide counties with additional resources to care for the uninsured population, which is likely to grow as federal and state policy changes take effect. The UC Berkeley Labor Center projects that two million more people will lose health care coverage by 2030 due to policy changes impacting Medi-Cal and Covered California.
5. The budget provides some temporary relief for the safety net
The budget includes some notable, one-time funds to help stabilize and shore up safety net programs and supports, including:
- Maintaining the Medi-Cal mobile behavioral health crisis benefit until July 1, 2027.
- Providing $100 million for the CalFood program to support demand for emergency food (up from a $30 million augmentation in the May Revise).
- Providing $900 million for a seventh round of the Homeless Housing, Assistance and Prevention (HHAP) program ($400 million more than the May Revise).
- Allocating $90 million in grants for financially distressed hospitals and $250 million to support public hospitals.
What’s Next?
The second half of the year will be a pivotal period for Medi-Cal, with various policies being implemented to take effect in 2027. Our team continues to closely monitor H.R. 1 implementation and further federal and state guidance. With the expiration dates of the CalAIM waiver and MCO tax approaching, we are also monitoring developments for both of these programs, as well as further rules for 1115 waivers overall.
Want more California policy updates? Sign up for our newsletter to receive expert health policy analysis across the state.
Transform Health is an Inc. 5000-ranked national private health care consulting firm with a mission to drive systems change to build healthy communities.