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After a decade of expanding health insurance and safety net programs, the Golden State took a sharp detour in 2025. As federal funding cuts and policy changes rippled through the health care system, California faced service cuts, coverage losses and growing uncertainty.
Over the summer, the spending plan approved by Congress was scaled back nearly a trillion dollars from the Medicaid program over the next decade. Funding cuts and new rules – such as job requirements – is expected to push 3.4 million Californians out of their Medicaid coverage when the changes take effect.
In Washington, a dispute over whether to renew subsidies for improved premiums that help keep the Affordable Care Act’s marketplace insurance plans affordable has sparked the longest shutdown in history. Lack of federal action, hundreds of thousands of people could be removed from covered insurance in California in 2026. More than 2,300 Dreamers in California have already lost access to the state marketplace: The Trump administration rolled back a rule that allowed undocumented people brought to the country as children to buy subsidized health insurance.
Federal immigration actions were pushed undocumented people to miss careand families reported poor mental healthand federal anti-transgender policies pressed suppliers to reduce on gender-affirming care.
The federal policy change forced the state to inject millions into Planned Parenthood to try to keep the clinics afloat. Anticipating more restrictive federal immunization rules under U.S. Health Secretary Robert F. Kennedy, California advanced their own vaccine guidelines.
The federal changes weren’t the only twist. State budget constraints and overspending in the Medi-Cal program caused California to freeze new enrollment for undocumented people and reduce some expensive benefits, such as weight loss drugs.
When it comes to affordability, Governor Newsom has delivered promise to lower the cost of insulin. In 2026, diabetics will be able to buy long-acting insulin pens at pharmacies for $11 a pen. After CalMatters shed light on the disappearing birth centersstate lawmakers approved a new law improving access in underserved areas, streamlining licensing requirements so birth centers can more easily contract with Medicaid.
Outlook for 2026
Office of the Legislative Analyst projects that Medi-Cal costs will continue to rise. Coupled with the uncertainty of federal funding cuts, lawmakers may once again look for ways to control spending and weigh priorities.
As federal spending cuts gradually take effect, they will have implications for hospitals and other providers, such as an increase in uncompensated care.
California distributes $6.4 billion from a voter-approved mental health bond. Starting July 1, the Behavioral Health Services Act will also require counties to spend revenue from a 1 percent tax on incomes over $1 million on services and housing for people who are homeless.