By Christine Mai-Duc | KFF Health News

California’s Medicaid program has borrowed $3.4 billion from the state’s general fund — and will likely need even more — to cover ballooning health expenses for 15 million residents with low incomes and disabilities.

The state Department of Finance disclosed the loan to lawmakers in a letter late Wednesday, noting funds were needed to make critical payments to health care providers in Medi-Cal, the state’s version of Medicaid. In recent months, Gov. Gavin Newsom’s administration has warned of skyrocketing health care costs, including higher prescription drug prices and increased enrollment by newly eligible seniors and immigrants without legal status.

Finance spokesperson H.D. Palmer said the loan will cover Medi-Cal obligations through the end of the month. He declined to specify the total of the program’s potential shortfall. However, a document circulated by state Senate leaders warns that additional funding may be needed to cover expenses through June 30, the end of the fiscal year.

The cost overrun adds a new layer of difficulty for Democrats who control the legislature and are already grappling with congressional budget plans that could slash Medicaid funding, which accounts for 60% of Medi-Cal’s $174.6 billion budget. President Donald Trump and Republican lawmakers have also criticized California Democrats for covering residents regardless of their immigration status.

Newsom spokesperson Izzy Gardon downplayed the loan. “Rising Medicaid costs are a national challenge, affecting both red and blue states alike,” Gardon said. “This is not unique to California.”

Health officials last year said the state would spend roughly $6.4 billion in the 2024-25 fiscal year to cover immigrants without legal status, which the Democratic governor has hailed as a key step toward his goal of providing “universal coverage” for Californians. In recent testimony, however, finance staff told legislators that benefits to all income-eligible Californians are projected to cost roughly $9.5 billion, of which $8.4 billion will come from the general fund.

Republicans called for fresh scrutiny of the state’s decision to cover residents without legal status. “This program is out of control,” Senate Minority Leader Brian Jones posted on the social platform X. “We are demanding a full hearing and a full cost analysis so the public knows exactly where their tax dollars are going.”

Patient advocates objected to Republicans singling out the expansion for immigrants.

“Health care costs are influenced by many factors including prescription drugs, hospital costs, and more,” said Rachel Linn Gish, a spokesperson for Health Access California, a consumer health advocacy group.

According to a fall update from the Department of Health Care Services, Medi-Cal spending grew due to higher-than-expected enrollment of seniors, fewer Californians losing Medi-Cal coverage than anticipated, and increased pharmaceutical spending, as well as expanding coverage of immigrants. For instance, the state is spending $1.1 billion more on residents who were expected to lose coverage after the covid-19 pandemic, and an additional $2.7 billion more than anticipated to cover unauthorized residents.

Assembly Speaker Robert Rivas said he’s committed to maintaining the state’s expansions of Medi-Cal services.

“There are tough choices ahead, and Assembly Democrats will closely examine any proposal from the Governor,” he said in a statement. “But let’s be clear: We will not roll over and leave our immigrants behind.”

Senate leaders said they were looking closely at the state’s estimated costs and caseloads and would recommend cost containment measures as part of their budget proposal in the coming weeks.

Scott Graves, budget director at the California Budget & Policy Center, said it’s not unusual for the state government to make adjustments when spending doesn’t line up with projections.

Last year, for instance, the state borrowed $1.75 billion against its general fund when revenues from a state provider tax were delayed. Prior to that, Department of Finance officials said, California took out a similar loan in 2018 for $830 million.

“The reality is all of these are just estimates, especially with a very complicated program like Medi-Cal,” Graves said, noting that $3.4 billion is roughly 2% of the state’s overall Medi-Cal budget. “It seems like we’re on the verge of making a mountain out of a molehill.”

Mike Genest, who served as finance director under Republican Gov. Arnold Schwarzenegger, agreed that adjustments can be routine. But he said the magnitude of Medi-Cal’s current overrun was not.

“For this to happen in the middle of the year — we’re only in March — I mean, that’s pretty astounding,” Genest said.

California Democrats continue to characterize Trump and congressional Republicans as the biggest threat, pointing to the House budget plan to shrink Medicaid spending by as much as $880 billion. They say cuts of that magnitude would leave millions of residents uninsured, reducing access to preventive care and driving up costlier emergency room services.

They cautioned that some short-term cost increases could be driven by newly eligible residents seeking long-delayed care, which could level off in coming years. However, some acknowledge difficult decisions ahead.

“We definitely have to ensure that those who are our most vulnerable — our kids, those with chronic conditions — continue to have some sort of coverage,” said Democratic Sen. Akilah Weber Pierson, a San Diego County physician. “The question is, what will that look like? To be quite honest with you, at this point, I don’t know.”

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