HR 1 would sharply change Medi‑Cal eligibility and financing, state officials and providers say

Senate and Assembly health committees heard July 2025 testimony that HR 1, the newly enacted federal law, would make sweeping changes to California's Medi‑Cal program by restricting eligibility, imposing new work and redetermination requirements, limiting financing tools for providers and cutting federal matching payments.

Department of Health Care Services Director Michelle Boss said Medi‑Cal "serves nearly 15,000,000 Californians, roughly 35% of the state," and described HR 1's combined provisions as placing "tens of billions of dollars" of federal funding at risk and creating a real prospect that millions could lose coverage. Boss spoke at the hearing's first panel on state implementation and finance.

Why it matters: Medi‑Cal is the state's largest health program for low‑income residents and finances a large share of care across hospitals, clinics and community health centers. Witnesses warned that funding and eligibility changes would increase uninsured rates, worsen hospital finances and trigger service reductions — particularly in rural and safety‑net facilities.

Key provisions described at the hearing

- Work requirements: HR 1 requires states to condition eligibility for adults ages 19–64 on meeting 80 hours of qualifying activities in a month within each six‑month period, beginning Jan. 1, 2027, unless exemptions or delay requests are approved. Director Boss said the department estimates the change could put coverage at risk for "up to 3,000,000 Medi‑Cal members" and could cost the state "over $20,000,000,000" in lost federal funds.

- Semiannual redeterminations: The law would require redetermination of eligibility twice a year for the ACA Medicaid expansion group, increasing paperwork and what officials called "churn." Boss estimated about 400,000 people could lose coverage because of the change.

- Retroactive coverage: For newly applying ACA expansion adults, retroactive Medi‑Cal coverage would shrink from three months to one month (effective Jan. 1, 2027); for other applicants retroactivity would fall to two months. Boss estimated about 86,000 people could be affected.

- Cost sharing: Cost sharing for the ACA expansion adult population would be allowed beginning Oct. 1, 2028, for people above 100% of the federal poverty level.

- Provider taxes and state financing limits: HR 1 freezes new or increased provider taxes, tightens broad‑based and uniformity requirements, and phases down California's allowable tax cap from 6% of net patient revenue toward 3.5% (beginning Oct. 2027). Boss and Adam Dorsey of the California Hospital Association said the combined limits on provider taxes and on state‑directed payments would sharply reduce non‑federal funding mechanisms hospitals rely on.

- Limits on state‑directed payments: New state‑directed payments would be limited to 100% of Medicare rates for ACA expansion states; existing payments above Medicare would be reduced incrementally beginning in 2028.

- Rural Health Transformation Fund: HR 1 creates a $50,000,000,000 fund for rural providers; half of that is to be distributed equally across states with approved applications. California officials said the Department of Health Care Access and Information would administer any state application, but federal details remain sparse.

- Federal penalties and PERM changes: The law tightens federal repayment penalties tied to error rates, removing some CMS waiver flexibility beginning Oct. 1, 2029, in ways state officials said could increase fiscal risk for administrative errors.

Provider and policy reaction

Adam Dorsey, vice president at the California Hospital Association, said HR 1 "cuts at the heart of financing for health care systems" and estimated a 10‑year loss to hospitals of between "$66,000,000,000 and $128,000,000,000," depending on federal implementation and approvals. "That is a tremendous risk for the system and for access in the Medi‑Cal program," Dorsey said.

Linda Wei of the Western Center on Law and Poverty warned HR 1 would reverse coverage gains tied to the ACA expansion and said studies show work requirements in other states produced coverage losses rather than increased employment. "Medi‑Cal coverage is life changing and life saving," Wei said.

Implementation and uncertainty

Officials noted several unknowns that complicate planning: CMS guidance on work requirements is not expected until June 2026; states can request a delay of implementation of work requirements for up to two years (potentially to Dec. 31, 2028) if they show a "good faith" effort; and the HHS secretary could grant transition periods for provider tax changes. Boss said the department is planning for implementation while exploring delay and transition options with federal partners.

The hearing also highlighted operational concerns: counties and the State face major administrative workloads to verify work activities, perform frequent redeterminations and automate communications. County eligibility offices will have to expand staffing, data sharing and IT work to comply with the new rules.

What happens next: Committee members pressed officials for more modeling and asked for copies of presentations and data. Director Boss and providers said they are continuing to refine estimates, seek federal transition periods, and plan outreach and automation to reduce so‑called procedural terminations. CMS guidance and subsequent federal rules will shape whether — and how quickly — these policies affect enrollment and provider revenues.

Ending: Witnesses and legislators urged rapid planning and legislative consideration of mitigation strategies, including state funding options, regulatory relief and statewide automation to reduce administrative churn and prevent avoidable coverage losses.