California's nonpartisan fiscal analyst to the California Legislature, known as the Legislative Analyst’s Office (LAO), has released a February report highlighting the anticipated fiscal effects of H.R. 1 to California's Medi-Cal program, which currently provides health care coverage to more than 14 million low-income people (around one-third of all Californians). H.R. 1, also known as the One Big Beautiful Bill Act, was signed by the President in July 2025 and introduces multiple significant changes to Medi-Cal generally aimed at reducing the federal government’s costs in these programs, but will increase costs for California.
For example, beginning January 2027, H.R. 1 requires "able-bodied" childless adults in Medicaid (19-64 year olds who received coverage through the 2014 Affordable Care Act expansion) to complete at least 80 hours per month of work, education, or community service. This requirement does not apply to certain exempt groups, such as those that are medically frail. In addition, beginning January 2027, the state will have to renew eligibility for childless adults (4.9 million people estimated in 2025-26) in Medi-Cal every six months. Medi-Cal generally renews eligibility for beneficiaries every 12 months. The LAO estimates that the new work requirements and eligibility verification changes could result in disenrollments between 1 to 2 million people, both from insufficient hours of engagement, as well as from the administrative burden of the six-month verification.
Other eligibility changes in HR 1 highlighted in the LAO report include changes to federal funding for hospitals that provide emergency services. Specifically, beginning in October 2026, federal funding for emergency services provided to undocumented childless adults will fall to the share of 50 percent, down from the current 90 percent. The LAO report estimates this change to cost the state $658 million in General Fund dollars in the budget year of 2026-27.
Finally, the report highlights the need for California to restructure its current Managed Care Organization Tax, which the state utilizes to financially support the Medi-Cal program. H.R. 1 prohibits states from adopting new provider taxes or increasing existing ones. In California, the new rules will primarily lower the size of a tax on health plans the state can collect. This will increase state costs as it backfills portions of lost funding from the tax. The LAO reports states that this could cost the state around $650 million General Fund dollars in 2026-27, and in the future, they project it could cost the General Fund several billion dollars each year.
As a result of these fiscal pressures, the LAO informs the California Legislature "it will not be possible for the state to backfill all the losses created by H.R. 1 absent significant other budget actions. Doing so would require the identification of billions of dollars in increased revenues and programmatic reductions elsewhere in the state budget." We will continue to monitor the budget situation and its impact on Medi-Cal over the year. The constitutional deadline for the California Legislature to pass a budget is June 15th.
