Assembly subcommittee hears DHCS on Medi‑Cal shortfall, March cash loan and rising pharmacy costs

The Assembly Subcommittee 1 on Health heard Department of Health Care Services (DHCS) Director Michelle Baas review the department's fiscal outlook and explain why the administration activated an interim cash loan on March 4 to keep Medi‑Cal payments flowing.

Baas told the panel that DHCS and the Department of Finance activated a $3.44 billion medical provider interim payment loan on March 4 to manage cash flow and ensure providers and plans are paid on time. The administration is also requesting an additional $2.8 billion consistent with a projected current‑year shortfall identified in the governor's budget, she said.

The subcommittee chair said transparency is essential as lawmakers examine the request. Legislative Analyst Office analyst Ryan Miller and Department of Finance staff joined the panel to provide context and answer members' questions.

DHCS said the November 2024 Medi‑Cal estimate projected $174.6 billion in total funds for the current year, including $37.6 billion in state General Fund for Medi‑Cal, and projected $188.1 billion total funds and $42.1 billion General Fund for the budget year. Baas and DHCS pointed to several factors driving higher‑than‑anticipated General Fund spending: continued higher enrollment after redeterminations for continuous coverage unwinding, higher enrollment among people with unsatisfactory immigration status after the 26–49 expansion, and sharply rising pharmacy expenditures, including broad uptake of GLP‑1 drugs.

Baas said the Governor's budget proposes to sunset some pandemic‑era eligibility flexibilities at the end of the current fiscal year (June 30, 2025). She emphasized the challenge of timing under California’s cash‑basis accounting for the Medi‑Cal program: revenue receipts and reconciliations can shift significant amounts between fiscal years, creating volatility in estimates and cash needs. Ryan Miller of the Legislative Analyst's Office noted that many states are confronting similar pressures from rising per‑enrollee costs and higher pharmacy spending.

Members pressed DHCS and the Legislative Analyst's Office about the quality of the data used for past estimates and when more granular line‑item detail will be available. DHCS said the May Revision will incorporate additional actual data through January 2025 and promised more detailed driver information at that time. Multiple legislators urged DHCS and the Department of Finance to respond quickly to legislative staff requests for underlying data.

Several assemblymembers also asked about policy levers to control costs. Baas and LAO staff said that while capitation rates do play a role, at the time the average capitation rate did not appear to be the primary factor in the current spending increases; rather, higher caseload and per‑claim costs—especially pharmacy—are important drivers.

Public commenters, including representatives of advocacy groups and unions, urged preserving expansions that increased coverage (such as eliminating the asset test and expanding coverage for some people regardless of immigration status) and warned against equating higher enrollment with a reason to cut coverage. Several commenters also urged the Legislature to press Congress for stable federal financing, noting proposals in Congress that would cut Medicaid funding nationally.

The subcommittee left the item open for further hearings; DHCS said it will update projections and provide more detail at the May Revision.