What We’re Tracking in California Health Policy in 2025
April 8 , 2025 | By Lillian Chen, MPP, MPH, and Sarabeth Zemel, JD
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2025 has ushered in a number of changes at the federal level that are trickling down to states. With a new presidential administration and a Republican majority in Congress, priorities reflected in the federal budget, proposed legislation, and administrative actions will have significant impact on the health policy landscape here in California.
For example, to preserve tax cuts enacted in 2017, Republicans are looking to make reductions to social safety net programs, including Medicaid. While there is a growing recognition that programs like Medicaid are vital to millions of Americans, few options exist to achieve the savings and keep the tax cuts, so cuts to the U.S. safety net seem inevitable.
With the release of California Governor Newsom’s proposed budget in January, revenue forecasts were better than expected and did not require that the Newsom administration make cuts to health programs such as Medicaid. However, we may see something different in the May Revision or later in the year that accounts for this changing economic and policy landscape.
Here is what Transform Health is tracking coming into the second quarter of 2025 in California:
Implications of Federal Medicaid Cuts for California
If Congress is successful in making changes to Medicaid — current possibilities include reducing the federal match rate, instituting work requirements, block granting or imposing per capita caps, or limiting provider taxes — then California will need to implement those changes to its Medi-Cal program. We may see some of these changes reflected in California’s May Revision of the budget, if Congress moves swiftly in adopting a unified budget resolution before its April recess. Millions of Californians could lose coverage under each of these proposals, including over eight million if work requirements are enacted.
Meanwhile, as Congress debates potential cuts to Medicaid, California faces a shortfall of over $6 billion to fund Medi-Cal. On top of a $3.4 billion General Fund loan that was approved to cover Medi-Cal costs for the rest of March, the Newsom administration has requested legislative approval for an additional $2.8 billion to cover the remaining fiscal year.
This funding shortfall may limit the state’s options in how it responds to federal changes to Medicaid. State officials have cited rising pharmacy costs, growth in enrollment of seniors, and higher than expected enrollment of undocumented immigrants as factors driving increased spending. In particular, the costly Medi-Cal expansion for the undocumented population has reignited critiques from some lawmakers that this poses additional strain on government dollars that should be prioritized for legal residents. This mirrors similar debates happening at the federal level and in other states.
Future of CalAIM 1115 and 1915(b) Waivers
In California, the Medi-Cal transformation initiative CalAIM is authorized through 1115 and 1915(b) waivers, which collectively allow the state to pilot innovative programs, such as Enhanced Care Management and Community Supports, through Medi-Cal managed care. Given the flexibility of Medicaid waivers, especially 1115 waivers, and CalAIM’s ambitious scope, there is considerable interest in what direction the state will take as the CalAIM 1115 and 1915(b) waivers approach expiration in 2026.
In addition to understanding whether the state will be in a financially viable position to sustain CalAIM services, our team is also paying attention to reporting on measurable impacts from the initiative that may inform CalAIM’s trajectory moving forward.
Affordability of ACA Plans
The enhanced premium tax credits that were enacted first through the American Rescue Plan Act (ARPA), then the Inflation Reduction Act (IRA) will expire at the end of this year. More than 170,000 middle-income Californians save an average of $384 per month in premium costs due to these enhanced tax credits. If not extended, consumers with incomes less than 400% of the federal poverty level (or about $60,000 for an individual), could see, on average, a $70 monthly increase in net premiums. Prior to ARPA, California had a state-funded subsidy program, but it’s questionable whether the state’s financial position — especially having to potentially pick up the tab for more Medi-Cal costs — would allow the state to self-finance subsidies for Covered California coverage.
New Marketplace Program Integrity Rule
In mid-March, the U.S. Department of Health and Human Services (HHS) released a new proposed rule designed to curb fraud and abuse in both state-based marketplaces and the Federally-facilitated Marketplace (HealthCare.gov). Notably, HHS proposes that many of the rule provisions, if finalized, will apply to and impact state-based marketplaces, like Covered California, although there has been no evidence of widespread fraud and abuse in state-based marketplaces.
The rule would shorten the annual Open Enrollment Period to just 45 days instead of 75; eliminate the low-income Special Enrollment Period, which allows anyone under 150% of the federal poverty line to enroll in marketplace coverage at any time; eliminate marketplace coverage for DACA recipients; and institute a number of enrollment verification measures that were designed to eliminate administrative burdens on consumers during the enrollment process. Comments are being taken on the proposed rule now, and it is expected to be finalized before the Open Enrollment Period in fall 2025.
New Essential Health Benefits Added to California Benchmark Plan
This month, the California Department of Managed Health Care (DMHC) issued a public notice that the state has preliminarily approved hearing aids, additional durable medical equipment, and infertility services to add to the existing benchmark plan for individual and small group coverage. Additional benefits had to meet minimum and maximum cost requirements of benefit richness. DMHC is currently accepting public comment on the draft proposal until mid-April before it submits the final proposal to the Centers for Medicare and Medicaid Services (CMS) in May. Upon CMS approval, the new benchmark plan would take effect at the beginning of 2027.
While these additional benefits will enhance what is available to individuals covered under those plans, regulations such as the proposed Marketplace program integrity rule will impact who may be able to access those additional benefits, as well as how readily they may be able to access them.
2025 is a year of transition as the new federal administration asserts its priorities and major health policy changes at the national level. As these are passed down to states to implement solutions, we expect California will have to make some hard choices as it tries to preserve health coverage for its residents. Watch this space for further updates from Transform Health’s Policy Team as these policy developments unfold.
Transform Health is an Inc. 5000-ranked national private health care consulting firm with a mission to drive systems change to build healthy communities. Reach out to us today if you would like to work together. Contact Heather Bates, COO and vice president, at heather@transformhc.com. We would love to hear from you!