The Source Blog

The final California state budget bill, SB 101, passed in June 2025, allocates more than $321 billion in state spending.  Lawmakers worked to close a $12 billion deficit through a mix of solutions, including delays, sunsets, and fund transfers.  While the budget was heavily debated, the Governor's administration defended the approach as necessary to maintain critical services in the face of federal funding cuts under the Trump Administration.  Following the enactment of SB 101, attention quickly turned to the accompanying trailer bills, which also carry consequential policy changes through modifications to laws that allow the state to implement policies introduced through the budget bill.  AB 116, the Health Omnibus trailer bill, signals a variety of state health policy changes affecting fertility coverage, Medi-Cal, Pharmacy Benefit Managers (PBM), and mental health.

Infertility Coverage Delay

One of the most discussed changes arising from the trailer bill is a delay in SB 729, which was enacted during the last legislative session.  The bill requires health plans that are regulated by the state to cover diagnosis and treatment for infertility.  Treatment to be covered includes in vitro fertilization (IVF), three egg retrievals, and an unlimited number of embryo transfers.  Out of pocket, such treatments can cost over $20,000; a figure many Californians cannot afford.  Initially, the coverage was scheduled to begin on July 1, 2025, but with the now-requested delay, SB 729 will become effective on January 1, 2026.  State government officials, including Governor Newsom and State Senator Caroline Menjivar, are asking Californians to be patient while the state adequately implements the program according to best practices for embryo storage and the use of "donor eggs and sperm." AB 116, the health trailer bill, modifies the language of SB 729 by pushing back the start date from July 1, 2025, to January 1, 2026.  In the meantime, scores of California citizens who have been awaiting the program's implementation are expressing frustration at yet another delay.  A resident of Central Valley, Ana Rios, and her wife have been trying to have a baby for years.  Following multiple setbacks in launching the California program, Ana and her wife have begun researching alternative options.  "You think you finally have a helping hand.  You reach out, and they take it back.”

Medi-Cal

Undocumented Individuals

In July, The Source reported on the state's final budget that dramatically altered multiple Medi-Cal coverage options for undocumented immigrants.  As California faced a $6.2B Medi-Cal shortfall after expanding coverage to all “unsatisfactory” undocumented residents, the budget included a novel charge to undocumented adults ages 19–59 via a $30 monthly premium starting July 1, 2027.  (In California, the term "unsatisfactory immigration status" is used by the state's Department of Health Care Services when determining eligibility for Medi-Cal.  An individual is considered to have Unsatisfactory Immigration Status for Medi-Cal purposes if they do not have, or cannot verify, one of the recognized immigration statuses that qualify for full, federally funded Medi-Cal.) The trailer bill continues to enforce the new monthly premium but now includes a 3-month grace period to allow for edits to the application if it is incomplete or submitted late.

Furthermore, beginning January 1, 2026, enrollment for unsatisfactory undocumented adults will no longer be available for new enrollment for coverage.  Exceptions include individuals who have already enrolled, children aged 0 to 18, and pregnant individuals.  Those who keep up with their annual enrollment will continue to receive coverage even if they do not meet the "satisfactory" criteria.  Similarly, the trailer bill confirms adults, 19 years and older, who have an “unsatisfactory immigrant status” will also lose dental coverage beginning July 1, 2026.  As with the enrollment freeze, children and pregnant individuals will continue to be eligible for dental care, with emergency coverage available to all.

Asset Limits

After years of advocacy to remove the Medi-Cal asset limit test, the 2025 budget bill has brought back the stipulation, which limits Medi-Cal enrollment to individuals whose total assets fall below a certain amount.  Beginning January 1, 2026, new asset limit thresholds will begin for individuals 65 years or older who have assets at or above $130,000 for individuals and an additional $65,000 for each additional "household" member.  This represents a significant departure from Governor Newsom's initial request for a $2,000 threshold amount in the February budget.  The trailer bill's language is similar to that of the final budget bill that proposed a $195,000 asset limit for couples.  Assets to be considered for Medi-Cal eligibility include bank accounts, second vehicles, second homes, and "other financial resources." Advocates for those who will need to meet these asset limits celebrate the rejected $2,000 limit, noting the near impossibility of living in California on $2,000 a month.  Although Governor Newsom's originally requested asset limit was projected to save the state over $500 million in 2026, the enacted asset limit will still help conserve about $45 million in funds.

Pharmacy Benefit Managers (PBMs) and Drug Rebates

As previously reported, PBMs are facing increased regulations in the state due to new rules requiring full licensure under the Department of Managed Health Care.  The trailer bill continues to add to new PBM regulations by creating a PBM Fund, effective January 1, 2027, which will house and be responsible for fees, fines, penalties, and reimbursements processed through the State Treasury Department.  Similar to the final budget bill, the trailer bill extends transparency expectations by mandating the submission of drug pricing and fee data to the Department of Health Care Access and Information (HCAI).  The data submitted will be transferred to the state's Health Care Payments Data Program (HPD), which serves as a database for cost analyses based on claims from both private and public payers.  By implementing stringent PBM regulations, the state hopes to establish an effective oversight system that enables statewide drug pricing transparency.

Similarly, the trailer bill authorizes Health and Human Services (HHS) to create new partnerships through CalRx and HCAI in an effort to address health concerns.  The new partnership aims to reduce the cost of both generic and brand-name drugs and medical supplies by fostering increased competition.  To further aid in reducing the amount Californians are paying for drugs, the trailer bill raises the minimum state rebate threshold from 20% to 25% of the list price before discounts.  Additionally, the trailer bill will expand the use of the Transgender, Gender Nonconforming, and Intersex (TGI) Wellness & Equity Fund monies.  The expansion will allow the state to spend program funds on preventative care, including prophylaxis, STI & HIV testing, and harm reduction overdose prevention.  Furthermore, $75 million of lost funding for HIV prevention is reallocated by the trailer bill.  This funding seeks to offset monies that were cut federally from the AIDS Drug Assistance Program Rebate Fund, which helps support out-of-pocket costs for individuals with HIV/AIDS.

Hospital Reimbursements

The Nondesignated Public Hospital Intergovernmental Transfer (NDPH IGT) Program enables county and district hospitals that meet eligibility criteria to receive additional Medi-Cal funds by transferring local funds to the state.  Once received, the state matches the amount through a federal matching program, which is then returned to the hospitals as supplemental Medi-Cal payments.  The trailer bill seeks to modify how the program pays for administrative costs by allowing the state to retain a small percentage of each Intergovernmental Transfer.  Currently set at 9%, the trailer bill increases the annual administrative fee to match the projected annual administrative cost.

Download PDF