Federal Medi-Cal cuts force California to weigh tax increases or coverage losses

Health advocates, labor unions and progressive lawmakers rallied at the California Capitol steps Wednesday, demanding Gov. Gavin Newsom and state legislators find new funding for Medi-Cal after President Donald Trump and congressional Republicans approved billions of dollars in federal Medicaid cuts.

The coalition, calling itself “Fight for Our Health,” urged Newsom and the Legislature to backfill lost federal funding for Medi-Cal, California’s nearly $200 billion Medicaid program serving millions of low-income and disabled residents.

The standoff leaves Newsom, in his final year as governor, between two politically costly choices: raise taxes on a state already perceived as overtaxed, or allow coverage losses for up to 1.8 million low-income and disabled Californians in coming years. The fight is expected to dominate the 2026 legislative session and fall midterm elections.

Advocates put responsibility on Sacramento

Judy Mark, president of Disability Voices United, addressed the governor directly from the Capitol steps.

“I want to take a moment to address the governor and the state Legislature,” Mark said. “We know that you are not responsible for these awful cuts, but now the responsibility does lie in your hands. You have the power to protect us.”

Health advocates said Newsom angered the coalition when his budget proposal failed to include money to replace lost federal coverage. The governor’s own analysts project about 522,000 Californians will lose Medi-Cal coverage in the 2026-2027 fiscal year, rising in future years to 1.8 million. Newsom’s administration has said the state does not have the money to cover people removed from the program under the new federal law.

California this year also began freezing new Medi-Cal enrollment for undocumented immigrant adults over rising program costs, drawing objections from progressives and health advocates.

A union-backed wealth tax divides Democrats

One revenue option — a wealth tax on California billionaires — has already set off a fractious political fight.

The Service Employees International Union–United Healthcare Workers West has proposed a ballot initiative that would impose a one-time 5% levy on California billionaires. Proponents say the measure would generate about $100 billion for the state’s health care system, helping offset the roughly $30 billion the state would lose annually under Trump’s tax-and-spending law. About 10% of the money raised would be reserved for public schools. The measure needs nearly 900,000 signatures to qualify for the November ballot.

Newsom opposes the measure. He told Politico this week that he has been personally pushing the proposal’s proponents to drop it, citing concerns that it could drive the targeted demographic — and their incomes — out of California. Google founders Larry Page and Sergey Brin have reportedly moved to shift some business entities out of California in response to the proposal. Democratic strategists close to Newsom are running a campaign committee to defeat the measure.

Newsom also has longstanding personal ties to many of the tech executives who would likely be subject to the proposed tax. They are potential donors should he make an expected presidential run after finishing his term this year.

Even among progressives, support for the wealth tax has been limited. Most legislators who would otherwise press for aggressive revenue measures have taken a wait-and-see stance. Newsom’s spokesperson, Izzy Gardon, declined to comment on whether the governor would consider alternative tax proposals.

A corporate tax alternative takes shape

Assembly Health Chair Mia Bonta, an Oakland Democrat, suggested a different approach: requiring corporations that employ workers paid so little they qualify for public health care assistance to pay new taxes.

“We cannot let these corporations keep getting a free ride,” Bonta said. “California has a responsibility to act decisively, and we will.”

Bonta has not yet introduced a bill, and health care advocates said they remain hopeful more options will emerge as the session proceeds. Progressive lawmakers who opposed Newsom’s move to freeze Medi-Cal enrollment for undocumented immigrants have signaled they plan to take up the funding fight in the current session.

The dilemma over how to respond to the federal cuts — which stem from the budget law Trump and congressional Republicans passed last year — is expected to define both the legislative calendar and the electoral landscape heading into the 2026 midterms.