GOP Push to Limit Medi-Cal Provider Tax Threatens Billions in Federal Funding

A Republican-led effort to restrict California’s use of a Medi-Cal provider tax could cut billions in federal funding and jeopardize healthcare access for millions of low-income residents.

In May, the Centers for Medicare & Medicaid Services (CMS) proposed a rule aimed at limiting how states apply taxes on hospitals and insurance providers to increase federal Medicaid matching funds. A related budget reconciliation bill passed by the Republican-controlled House includes similar or stricter measures.

California, which operates Medicaid as Medi-Cal, supports approximately 15 million low-income and disabled residents—the largest Medicaid population in the country. In 2024 alone, the state raised $8.8 billion by taxing Medi-Cal health plans under Proposition 35 and another $5.9 billion from taxes on hospitals.

This revenue helps offset the state budget and funds healthcare services for Medi-Cal patients, including retaining medical staff. If the CMS proposal is enacted, California stands to lose a significant portion of its federal matching funds—deepening an already projected $12 billion state budget deficit.

Edwin Park, professor of public policy at Georgetown University, stated the proposed limits “ultimately lead to fewer enrollees, reduced benefits, and a weakening of Medicaid overall.” Kayla Kitson, of the California Budget & Policy Center, warned that a loss of the $13.9 billion in revenue from managed care taxes would have a severe impact on statewide health policy.

States like Michigan, Massachusetts, and New York use similar provider tax structures, raising concerns that the proposed restrictions could ripple nationwide.

BY BRIAN CHOI [choi.inseong@koreadaily.com]