CMS guidance prompts shift of about 2 million Medi‑Cal enrollees to fee‑for‑service; senators press for access, dialysis analysis

The Department of Health Care Services told a Senate subcommittee that federal guidance requires California to transition approximately 2 million Medi‑Cal enrollees with unsatisfactory immigration status (UIS) out of capitated managed care and into the Medi‑Cal fee‑for‑service delivery system effective Jan. 1, 2027.

Tyler Sadwith, the state Medicaid director, said the change stems from a September 2025 CMS clarification that federal financial participation for emergency Medicaid services for people with UIS is only available in fee‑for‑service arrangements and not within risk‑based managed‑care contracts. "This is not a budget solution," Sadwith said, describing the instruction as a federal clarification of eligibility for federal matching funds.

DHCS proposed operational steps to minimize member disruption: early member notices and FAQ materials in multiple languages, targeted outreach with managed‑care plans and providers, a dedicated call center and technical assistance to encourage ECM (Enhanced Care Management) and community health workers to enroll in fee‑for‑service billing. The department requested $25 million in state‑operations funding to support the transition and $33 million in local assistance for data and claims‑processing costs.

On fiscal impacts, DHCS presented a model that shows approximately $583.8 million in total funds (about $471.6 million general fund) in the budget year and ongoing impacts of approximately $1.5 billion total funds (about $1.2 billion general fund). DHCS said projections account for multiple factors, including changes in utilization, administrative cost shifts, and anticipated reductions in some services owing to immigration‑related effects.

Committee members pressed the department to produce more rigorous analysis about access and continuity of care, especially for services that are often delivered outside hospitals, such as outpatient dialysis. Senator leaders said they were concerned that restricting dialysis to hospital settings for UIS enrollees could worsen health outcomes and increase overall costs.

The Legislative Analyst's Office flagged uncertainty in projected savings, the administrative cost to the state of performing functions that managed care plans currently provide, and implementation risks that could increase volatility in the Medi‑Cal budget once care shifts into fee‑for‑service.

DHCS said it will work closely with plans and providers to preserve care coordination where possible and will provide the committee with additional modeling on utilization, cost impacts and provider participation in the fee‑for‑service system. The committee held the item open for follow‑up.