Who Funds Medi-Cal: Federal, State, County, and Provider Sources

Medi-Cal is funded by a layered mix of sources: federal Medicaid matching dollars, California’s state General Fund, a dedicated tax on managed care organizations, county realignment revenue, assessments paid by hospitals and nursing facilities, and small contributions from beneficiary cost-sharing and estate recovery. For fiscal year 2026–27, the Governor’s proposed Medi-Cal budget totals roughly $222.4 billion, with about $48.8 billion coming from the state General Fund and the balance from federal match and other revenue.¹ The program covered about 14.7 million Californians as of mid-2025.²

Federal Medicaid Matching Funds

The federal government pays the single largest share of Medi-Cal’s bill. Under Title XIX of the Social Security Act, Washington reimburses California a set percentage of what the state spends on covered medical services.³ That percentage is called the Federal Medical Assistance Percentage, or FMAP.

FMAP is calculated from each state’s per capita income relative to the national average, with a statutory floor of 50 percent and a ceiling of 83 percent.⁴ California sits at the 50 percent floor. For every state dollar spent on the traditional Medi-Cal population, the federal government puts in a matching dollar.

The rate is much higher for adults who became eligible under the Affordable Care Act’s expansion to 138 percent of the federal poverty level. For that group, the federal match is 90 percent, so California pays only 10 cents on the dollar.⁴ That enhanced match is why covering millions of expansion enrollees has stayed affordable for the state.

California’s General Fund

California’s share of the bill comes mainly out of the state General Fund, which is filled by personal income taxes, corporate taxes, and sales taxes.⁵ The $48.8 billion General Fund contribution proposed for 2026–27 makes it the biggest state-level source.¹ Medi-Cal typically consumes about 15 percent of all General Fund spending, trailing only K–14 education.

The Welfare and Institutions Code requires the legislature to appropriate the sums the Department of Health Care Services (DHCS) needs to pay claims.⁶ The Governor’s January budget estimates the coming year’s needs from enrollment and cost projections, and once the legislature signs off, the Controller releases the money to pay providers.

Policy choices move that number. California eliminated the asset limit for seniors and people with disabilities in January 2024, which the Legislative Analyst’s Office estimated added about 100,000 enrollees and roughly $700 million in annual General Fund cost. The same office noted that the asset limit is being reinstated in January 2026, which should lower enrollment in those groups and the state’s bill with it.⁵

The Managed Care Organization Tax

California taxes managed care organizations, both Medi-Cal and commercial health plans, based on how many members each plan covers.⁷ The tax lives in Article 7.1 of the Welfare and Institutions Code, starting at Section 14199.80.⁸ The 2026–27 budget projects about $2.5 billion in MCO tax revenue flowing to Medi-Cal.¹

The money matters for more than its face value. Because California spends the proceeds on healthcare, those dollars qualify for federal match, which effectively doubles their reach and lets the state raise provider rates and expand benefits without pulling more from the General Fund.⁷

Voters made the tax permanent in November 2024 by approving Proposition 35, so it no longer needs periodic legislative reauthorization. Proposition 35 also tells the state where the money has to go. For 2025 and 2026, $4.7 billion must be directed to specified rate increases and General Fund offsets. From 2027 on, at least 92 percent of the first $4.3 billion raised each year has to fund provider rate increases for services such as primary care, maternity care, mental health, emergency care, and medical transportation, and only 8 percent can offset General Fund Medi-Cal spending.⁹

County Contributions Through Realignment

Counties fund a meaningful slice of Medi-Cal services, especially behavioral health. In 1991 and again in 2011, California shifted responsibility for certain health and social service programs to the counties, pairing each shift with dedicated shares of sales tax and vehicle license fee revenue. Those arrangements are called the 1991 Realignment and the 2011 Realignment.

Counties use that earmarked revenue to pay for programs including Medi-Cal specialty mental health services and substance use disorder treatment. Combined realignment revenues have run above $18 billion a year in recent years, though that total also covers social services and other programs beyond Medi-Cal. Because the eligible services draw federal Medicaid match, county dollars also pull down additional federal funds.

Provider Assessments on Hospitals and Nursing Facilities

Certain providers pay directly into Medi-Cal through industry-specific Quality Assurance Fees. General acute care hospitals pay a fee as a condition of participating in state-funded coverage, with the money going to the Hospital Quality Assurance Revenue Fund.¹⁰ Nursing facilities pay a per-resident-day fee under regulations tied to the Health and Safety Code and the Welfare and Institutions Code.¹¹

Like the MCO tax, these fees do double duty. The state spends them on qualifying services, which triggers federal match, and the combined money comes back to the contributing providers through higher reimbursement rates. The cycle narrows the gap between what Medi-Cal pays and the cost of care, which helps keep hospitals and nursing facilities willing to take Medi-Cal patients.

What Beneficiaries Themselves Pay

Most Medi-Cal beneficiaries pay nothing. A smaller group pays through share of cost, which applies mainly to people in the Aged, Blind, and Disabled Medically Needy category whose monthly income exceeds a threshold called the Maintenance Need Level. For a single person that threshold is $600 a month. Each month the beneficiary spends the difference between their income and the threshold on medical bills before Medi-Cal starts covering costs, functioning like a monthly deductible.

The Working Disabled Program covers people with disabilities earning up to 250 percent of the federal poverty level. Since July 2022, the monthly premium for that program has been zero.¹² Direct contributions from beneficiaries make up only a sliver of total Medi-Cal funding.

Federal law also requires every state to recover certain Medicaid costs from the estates of deceased beneficiaries who were 55 or older when they received benefits, covering at least nursing facility services, home and community-based services, and related hospital and prescription drug costs.¹³ California’s Estate Recovery Program, run by DHCS, limits recovery to those federally required services. Recovery cannot begin while a surviving spouse, registered domestic partner, or dependent relative is alive, and it is barred when the beneficiary is survived by a child under 21 or a child of any age who is blind or disabled.¹⁴ Estate recovery returns some dollars to the program, but not on the scale of taxes or provider fees.

What Could Change the Funding Mix

The federal share that holds this whole structure together is not guaranteed. Federal legislation moving in 2025, including the House-passed reconciliation bill (H.R. 1), contains provisions that could reduce the enhanced 90 percent FMAP for the Medicaid expansion population. If the expansion match dropped to California’s standard 50 percent, DHCS estimates the state would face more than $12 billion in additional annual cost.²

Those federal changes also pull on the MCO tax. The Governor’s 2026–27 budget warns that federal legislative changes combined with Proposition 35’s spending restrictions “significantly limit the potential size of a future MCO Tax, resulting in a substantial reduction in ongoing funding to support the Medi-Cal program.”¹ Because the tax depends on federal match to multiply its revenue, a smaller match shrinks the tool. Any sustained drop in federal participation would push California to raise state and county contributions, reduce benefits, or tighten eligibility to close the gap.

1
CA.gov. Health and Human Services – 2026-27 Governor’s Budget Summary
2
DHCS.ca.gov. California H.R. 1 Implementation Plan
3
Office of the Law Revision Counsel. 42 USC Chapter 7, Subchapter XIX – Grants to States for Medical Assistance Programs
4
Office of the Law Revision Counsel. 42 U.S. Code 1396d – Definitions
5
Legislative Analyst’s Office. Considering Medi-Cal in the Midst of a Changing Fiscal and Policy Landscape
6
California Legislative Information. California Welfare and Institutions Code 14105.200
7
DHCS – CA.gov. California’s Managed Care Organization Tax FAQ
8
Justia. California Managed Care Organization Provider Tax Laws
9
Legislative Analyst’s Office. The 2025-26 Budget – MCO Tax and Proposition 35
10
Justia. California Welfare and Institutions Code 14167.31-14167.40 – Article 5.22 Quality Assurance Fee Act
11
Cornell Law School. Cal. Code Regs. Tit. 22, 52100 – Quality Assurance Fee
12
DHCS.ca.gov. Working Disabled Program
13
Office of the Law Revision Counsel. 42 U.S. Code 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
14
DHCS.ca.gov. Estate Recovery Program