University of California federal and health policy staff told the Health Services Committee that the federal reconciliation law signed July 4 makes the single largest cut to Medicaid in history and will materially affect UC Health and California hospitals through multiple mechanisms, including freezing and phasing down state-directed payments, changing provider tax rules and imposing new eligibility and reporting requirements.

“[The reconciliation bill] makes the largest cut to Medicaid in history by cutting spent Medicaid spending by a trillion dollars over a decade,” Tam Maher, AVP of Health Policy and Regulatory Affairs, said during the federal policy update. Kent Springfield, director of health and clinical affairs in federal government relations, described UC advocacy efforts in the preceding months to educate members of Congress and oppose proposals that would have worsened the impact.

Why it matters: UC hospitals rely heavily on Medi‑Cal supplemental and directed payments and on certain state provider taxes to finance services for Medi‑Cal patients. Presenters said supplemental payments comprise a substantial share of hospital Medi‑Cal reimbursements and that changes in federal rules and matching rates will shift costs to the state and to providers.

Major provisions described
- State-directed payments: The law freezes existing state-directed payments and, beginning in 2028, phases down the ceiling for those payments from an average commercial rate to Medicare levels, reducing supplemental payments over several years. UC staff estimated an illustrative cumulative reduction across UCHealth of roughly $100 million, subject to change as federal guidance is released.
- Provider taxes: The law tightens rules for permissible provider taxes and barred new or increased provider taxes after enactment. California’s managed care organization (MCO) tax and private hospital tax were flagged as potentially noncompliant under the new standards. Staff said invalidation of an existing MCO tax could create an estimated multi‑billion-dollar hole in the state budget (~$4 billion cited for the state) and threaten funding streams accessed by UC and public hospitals.
- Match rate for emergency Medicaid services for non‑citizens: Federal matching for emergency services for certain non‑qualified immigrants would fall from 90% to 50%; UC staff estimated a preliminary $30 million system impact, with uncertainty depending on enrollment and service patterns.
- Eligibility and enrollment: The bill requires community-engagement (“work”) requirements (80 hours monthly) and more frequent eligibility verification, plus new cost-sharing up to $35 per service (with several exceptions). Presenters warned these administrative and reporting rules could cause eligible people to lose coverage and increase uncompensated or emergency care use.

System and state response
UC’s federal relations and campus government relations directors led an advocacy campaign that included letters, meetings and constituent outreach; presenters thanked members of the California delegation who raised concerns in process. The law’s implementation is staggered: some provisions took effect immediately on enactment (e.g., provider tax freeze), others phase in 2026–2028. Staff said they will monitor federal rulemaking and CMS guidance, press for transition periods and delays where feasible, and engage with the state as it adapts its budget and Medicaid financing.

Regents’ concerns and next steps
Regents asked about timeline and potential scale of coverage loss. Staff said statewide estimates range into the low millions of people losing coverage over time; direct UC patient counts were not provided. Multiple regents asked for a follow-up briefing focused on state impacts and on the provider tax and MCO tax issues. Staff said they and trade associations (AAMC and others) will continue advocacy and that administrative guidance from CMS will shape outcomes.

Ending: The committee asked staff to remain engaged with federal and state policymakers, to seek delays or transition periods where possible, and to provide additional briefings as federal and state implementation details emerge.