On June 15, the California Legislature approved a 2026–27 state budget plan (AB 109), meeting the constitutional deadline for the legislature to pass and send a balanced budget to the Governor. Legislative leaders will now enter final budget negotiations with Governor Gavin Newsom over the coming weeks, with the Governor expected to sign or veto the budget by June 29.
The Legislature’s budget package rejects or delays several of the Governor’s proposed healthcare spending reductions included in the May Revision while also making targeted investments in Medi-Cal, healthcare infrastructure, and workforce programs.
Revenue Proposals Included in the Budget
The legislative budget package includes several proposals intended to address the state's fiscal challenges, including:
- Renewal of the Managed Care Organization (MCO) tax in a manner that complies with updated federal requirements (AB 125).
- A cap on certain corporate tax exemptions beginning in 2030 (SB 122).
- Expansion of sales and use taxes to electronically delivered prewritten software (SB 122).
- Implementation of the Fair Share from Big Corporations Act (AB 177), which requires the Department of Finance to provide options to the Legislature by March 1, 2027, to establish a tax on the state’s largest corporations whose employees rely on Medi-Cal. Revenues from this tax would be used to support the Medi-Cal program.
Medi-Cal and Healthcare Access Investments
The Legislature rejected or delayed several of the Governor's proposed reductions to Medi-Cal services.
The budget includes:
- $1 billion General Fund to delay, until July 1, 2027, the elimination of prospective payment system (PPS) reimbursement for community clinics serving Medi-Cal beneficiaries with unsatisfactory immigration status (UIS).
- $125 million General Fund to establish a program covering emergency services for individuals who lose Medi-Cal coverage due to H.R. 1 and other uninsured individuals.
- $190 million General Fund to delay the elimination of Medi-Cal dental benefits for the UIS population until July 1, 2027.
- $256.9 million General Fund to delay the elimination of Proposition 56 supplemental provider payments for dental services in Medi-Cal until July 1, 2027.
- Rejection of the Governor’s proposal to eliminate acupuncture benefits in Medi-Cal.
- $213.9 million General Fund to support counties in managing the increased administrative workload associated with implementing H.R. 1 changes to Medi-Cal.
Investments in Hospitals and Healthcare System Stability
The budget includes several investments intended to support healthcare infrastructure throughout California, including:
- $250 million General Fund for public hospitals.
- Up to $190 million General Fund for additional rounds of forgivable loans through the Distressed Hospital Loan Program.
- $10 million General Fund to the Department of Health Care Access and Information (HCAI) to establish a healthcare access stability unit that will support planning efforts to maintain critical services during periods of financial distress and provide technical assistance to distressed hospitals.
Physician Workforce Investments
The budget also appropriates an additional $5 million General Fund to HCAI to support physician access and workforce development efforts in healthcare shortage areas. CAFP will provide updates as additional implementation details and proposed language become available.
While the Legislature has approved AB 109, the state budget process is not yet complete. Negotiations between the Legislature and Governor Newsom will continue over the coming weeks, and additional legislation needed to carry out the budget and establish program details is expected to be finalized before the Governor takes final action on the budget package.
CAFP will actively monitor, analyze, and engage in the remaining stages of the budget process, including final negotiations and budget implementation legislation, and will provide members with timely updates on significant decisions affecting California’s health care system and physician workforce.
