Today is primary day in California—with high-profile races for governor and Los Angeles mayor—so voters should prioritize candidates with strong records of fiscal discipline.
The Golden State has a history of fiscal irresponsibility that has strained budgets, and Medi-Cal, the state’s Medicaid program, is the clearest example. The program has expanded drastically over time, and changing federal policies signal the gig is up for California when it comes to reliance on federal dollars.
Medi-Cal currently covers approximately 14.5 million Californians—over one-third of the state’s population—and accounts for $222 billion in total annual spending. This makes the program the largest single item in the 2026-2027 governor’s budget by far.
This bloated budget reflects significant structural problems.
First, Medi-Cal’s reliance on federal funding has distorted incentives. Under the Affordable Care Act, the federal government covers 90% of costs for Medicaid expansion enrollees, while the state pays just 10%. For traditional Medi-Cal populations, California’s federal match rate is 50%. This creates a strong financial incentive for the state to expand eligibility at the expense of federal taxpayers.
The Medi-Cal budget has also ballooned under provider tax schemes, especially the Managed Care Organization tax. In this scheme, California pays providers more money for services, which results in more federal match funding. Then, California taxes providers on those higher amounts, generating state revenue to offset increased spending. The net effect is that the federal government pays a higher share of the bill, instead of the statutory 50-50 split.
Second, aggressive expansions have driven costs beyond projections. An overreliance on federal funding has encouraged California lawmakers to extend Medi-Cal coverage to many groups and services for which federal funding is not allowed. State taxpayer dollars are used to finance several components of the left-wing health care agenda, including abortion services and euthanasia programs.
The largest of these is an $8.4 billion allocation covering illegal immigrants. In April, Gov. Gavin Newsom signed emergency legislation closing a $2.8 billion funding gap in Medi-Cal while guaranteeing continued coverage for hundreds of thousands of illegal aliens.
The One Big Beautiful Bill Act, signed into law in 2025, introduced major Medicaid reforms, including work requirements on the state’s Medicaid Expansion population, more frequent eligibility determinations, and tighter restrictions on state use of provider tax schemes.
In effect, congressional Republicans have tightened the screws on California’s Medi-Cal gravy train, with foregoing projections estimated to cut tens of billions of dollars of federal support annually, leaving the Golden State responsible for widening coverage costs.
Independent forecasts and the Legislative Analyst’s Office have highlighted these ongoing budget pressures, with per-enrollee costs and expansion overruns contributing to an $8 billion dollar shortfall. There are only two solutions to this financial fiasco: increase revenues by further raising taxes or cut costs by tightening eligibility and weeding out imprudent spending.
Finally, waste and fraud compound California’s spending problem. Medi-Cal has seen notable fraud cases highlighting vulnerabilities in prescription drug and home health coverage, among others.
Examples include a $300 million prescription drug billing suit (Montclair, 2024) and a $60 million home health and hospice fraud indictment (Southern California, 2024). Investigations are currently underway into a potential fraud ring involving taxpayer-funded taxi rides for patients. Civilian investigator Nick Shirley alleges an additional $170 million of fraud in other health and welfare programs in California.
The expansive Medi-Cal boondoggle has certainly become a hotspot for fraudsters. Thus, the Golden State has been targeted by the new federal fraud task force headed by Vice President JD Vance, who recently deferred $1.3 billion in Medicaid funding after an estimated $600 million in suspected Medicare fraud in the state was identified.
California has delayed tough spending decisions for years by gaming federal funding. With federal support now tightening under OBBB, but costs rising faster than revenues due to program expansions, the state must confront higher General Fund health care burdens.
As Californians approach the polls on June 2, they should demand accountability for decades of fiscal irresponsibility that has put their state at a rapidly approaching budgetary cliff. Responsible leadership requires facing reality—not more creative accounting.
The time to pay the piper is fast approaching, and that warrants fiscal discipline to set Medi-Cal, and the broader budget, on the right course.
