On Independence Day, President Trump signed the One Big Beautiful Bill Act, which is projected to reduce enrollment in Medicaid programs throughout the country, including Medi-Cal in California.
But Californians should cheer, not jeer, these coverage “losses.” The law will primarily disenroll people who should have never been covered by the program in the first place. And it will make Medi-Cal work better for taxpayers and the truly needy.
California lawmakers have greatly expanded Medi-Cal eligibility in recent years. In 2024, they allowed undocumented immigrants ages 26 to 49, the bulk of the undocumented population, to enroll in Medi-Cal. That made California the first state in the nation to open up its Medicaid program to all undocumented immigrants.
That same year, the state removed its asset limit test to qualify for Medi-Cal’s long-term care benefits. As a result, multi-millionaire seniors can now stay in nursing homes for months or even years without spending a dime of their own money.
Both those expansions have proven enormously expensive.
Offering Medi-Cal to undocumented immigrants was originally expected to cost $3.9 billion from January 2024 through June of this year. But the state is actually spending about $8.5 billion annually to fund coverage for roughly 1.6 million undocumented immigrants. It had to borrow billions from the General Fund earlier this year to cover that tab.
The number of seniors enrolling in Medi-Cal, meanwhile, surged nine-fold from roughly 1,600 per month in the final half of 2023 to 14,500 a month in the first half of 2024, at a cost of about $700 million to the General Fund for fiscal 2024-2025.
It would be one thing if California taxpayers were paying for this largesse on their own. But the state has managed to stick taxpayers elsewhere with much of the cost of these expansions.
That’s because California employs some of the most aggressive “provider taxes” in the nation. In 2023, the state more than tripled its tax on the insurers who administer Medi-Cal plans, from $55 per enrollee per month to $182.50, a figure that has since increased to $187.50 this year and will jump to $192.50 next year.
These taxes aren’t a burden on insurers, though. Just the opposite. California returns this money to insurers via increased Medi-Cal payments.
But by raising more revenue, and then “spending” this higher sum on Medi-Cal, California is able to extract additional billions in matching funds from the federal government. The Golden State will receive more than $19 billion in extra federal funding from 2023 through the end of 2026 thanks to this scheme.
Nominally, California uses its “own money” to expand Medi-Cal coverage to people — like rich seniors and undocumented immigrants — who are ineligible under federal law. But money is fungible. Without the windfall from provider taxes to cover its legacy Medi-Cal population, California would have no hope of expanding coverage to other groups.
Politicians in both parties have previously denounced these levies as legalized money laundering. When he was vice president, Joe Biden called provider taxes a “scam.” President Barack Obama’s fiscal 2013 budget proposed restricting provider taxes, warning that they jeopardize the “integrity” of the Medicaid program, which was always meant to be a genuine shared financial burden between states and the federal government.
The OBBBA halts this racket. The law freezes existing provider taxes and gradually lowers the hold harmless “safe harbor” provider tax threshold from 6% to 3.5%, the precise level that President Obama’s fiscal 2013 budget recommended. In practice, this reform will reduce the amount of federal matching funds that states can generate from provider taxes.
California’s new budget reflects this reality. The state has frozen enrollment of undocumented immigrants in Medi-Cal, implemented a $30 monthly premium for undocumented enrollees between the ages of 19 and 59, and eliminated dental benefits for undocumented immigrants.
The new law also makes other sensible reforms, such as requiring states to review their Medicaid rolls every six months, up from once annually, and disenroll people who are no longer eligible. That’ll prevent tens of billions of dollars in improper payments.
Then there are the law’s new work requirements. Able-bodied individuals up to age 64 who want to stay on Medicaid will need to engage in 80 hours per month of work, volunteering, education, or job training. Exemptions exist for pregnant women, caregivers, and the disabled.
Governor Gavin Newsom has decried these changes as “cruel.” But ensuring that able-bodied adults are eligible in the first place, and requiring them to work in exchange for taxpayer-funded health care, is just common sense.
The One Big Beautiful Bill Act doesn’t gut Medi-Cal. It restores its core purpose and reduces the burden on taxpayers. And it will force California lawmakers to think twice before wantonly expanding coverage in the future.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is “The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It” (Encounter 2025). Follow her on X @sallypipes.