By Ana B. Ibarra, CalMatters
!["Gov.]("https://i0.wp.com/calmatters.org/wp-content/uploads/2024/03/022924_Newsom-Prop-1_KC_CM_15.jpg?fit=1200%2C800&ssl=1")
This story was originally published by CalMatters. Sign up for their newsletters.
California under Gov. Gavin Newsom has made sweeping changes to its behavioral health system, pouring billions of dollars into new services and support programs.
But the state’s ambitious plans face a looming threat: the proposed federal spending cuts that Congress is currently considering are seen as all but certain to impact Medicaid and could bring to a halt some of the headway the state has made in responding to its behavioral health crisis.
It’s not that all of California’s behavioral health policies are explicitly tied to Medicaid, but many state and local mental health programs draw funding from it. Less Medicaid money means less money for those efforts.
“When you remove resources of this size and scope everything is at risk,” said Alex Briscoe, principal with the nonprofit Public Works Alliance and who previously led the Alameda County Health Care Services Agency. “To be fair, the behavioral health reform landscape of California was just written, and we are still very much moving from promise to practice.
“So it’s an extremely difficult time to see such fundamental threats to funding Medicaid,” Briscoe said.
It is unclear what these federal spending cuts will look like, but a budget resolution that passed the House last month proposed $880 billion in reductions over the next 10 years from the committee that oversees Medicaid. Both chambers still need to agree on a joint budget resolution.
Medicaid, the joint state and federal health insurance program for low-income people, pays for the care of four in 10 Californians. It’s through this program, also known as Medi-Cal in the Golden State, that millions can access behavioral health services such as therapy, medication, psychiatric evaluations and crisis support. About two-thirds of California’s $161 billion Medicaid spending comes from the federal government.
It’s also the Medicaid program that helps California pay for some of its social support services for its most vulnerable residents. They include housing navigation and food assistance, which help stabilize people and improve their chances of completing their course of mental health or substance use treatment.
The federal threats to Medicaid funding come at a time when close to half of adults in the state have reported symptoms of anxiety or depression, and about 1.2 million of them live with a serious mental health illness, according to figures by the National Alliance of Mental Illness. When it comes to children, 1 in 6 experience a mental health disorder every year.
Meanwhile, opioid-related deaths skyrocketed between 2018 and 2023, largely because of fentanyl use, state data shows. Opioid overdose deaths peaked at more than 8,000 in 2023 and have been declining since last year.
In response to the grim landscape, Newsom set out to revamp the state’s behavioral health system. This has included growing the number of treatment beds, training new mental health workers, expanding the reach of crisis hotlines and mobile crisis services, increasing the availability of opioid overdose reversal medication, and increasing mental health access in schools, among other changes.
!["Tents]("https://calmatters.org/wp-content/uploads/2024/07/04222LA-Homeless-Court_TS_03-CM-1024x682.jpg")
The state pulls from multiple buckets, such as special taxes, to fund its public behavioral health system, but federal funding through Medicaid is an essential piece of it. Across the country, Medicaid is the largest payer for mental health services.
CalMatters asked the governor’s office what Medicaid cuts could mean for the state’s behavioral health system. It released a written statement from Health Secretary Kim Johnson in which she reiterated that the administration had an “unwavering” commitment to ensure that all Californians have access to mental health and substance use disorder treatment.
“Behavioral health care is essential health care for the well-being of individuals, families, and communities across California,” she said. “Investing in behavioral health services saves lives, reduces long-term costs, and strengthens our workforce and economy.”
But mental health advocates, health plans, and county officials put it this way: Medicaid funding cuts would result in more sick people going without treatment. That would increase the likelihood of them losing employment or dropping out of school and ending up in need of more acute care, or worse, on the street.
“There are tons of people on the streets who are struggling,” said Corey Hashida, a senior research associate at the Steinberg Institute, a mental health advocacy organization. “At a time when we’re trying to move forward with doing these big things to help those folks, all this uncertainty and chaos is swirling around federal cooperation … it just infuses a little fear into the safety net.”
In a recent policy brief, Hashida explained that in addition to possible funding cuts to Medicaid, key federal behavioral health grants are also at risk. And California has already started to see some of this fallout. On March 24, the California Department of Health Care Services, which oversees the state’s Medicaid program, received termination letters from the federal Substance Abuse Mental Health Services Administration, pulling back $120 million in behavioral health grants.
Those grants, according to the department, were intended for initiatives at the state and local level, including work to reduce overdose deaths and expand access to medications for opioid use disorder.
California could lose billions in Medicaid funding
The feds could roll back Medicaid spending in a number of ways, such as imposing work requirements or restructuring funding formulas. They could also restrict how Medicaid funds are used by ending federal waivers that expanded how California and other states use money from the program.
Policy and budget experts say that it is difficult for states to make contingency plans when it is unclear how or if the cuts will play out.
President Donald Trump has said that he will not touch Medicare and Medicaid as he looks for spending reductions to fund extending his 2017 tax cuts. He has said he will only go after eliminating fraud in the programs. However, the Congressional Budget Office has found that if cuts to Medicare, the insurance program for seniors, are off the table, then Congress would have to make deep cuts to Medicaid to reach House Republicans’ savings goal.
By some estimates, Republican proposals to reduce spending in Medicaid could translate into an annual loss of $10 billion to $20 billion in federal funds for California.
For example, Congress may choose to reduce the matching dollars that the federal government pays states for adults who gained coverage under the Affordable Care Act’s Medicaid expansion. The federal government pays California 90% of the cost for this expansion population — that’s more than the 50% matching rate the feds pay the state for other enrollees.
This expansion allowed many childless adults to access critical mental health treatment, including many struggling with psychosis, said Michelle Doty Cabrera, executive director of the County Behavioral Health Directors Association. Psychosis is a condition that can result in hallucinations. It typically emerges in late adolescence or early adulthood, but can be treated with medication and therapy.
That expansion “was a game changer,” Doty Cabrera said. “Taking away funding for that population would be devastating.”
Counties are responsible for providing specialty mental health services to people with more serious mental health conditions and substance use disorders. Counties fund these services with their own local revenue, some state dollars and matching federal Medicaid funds.
“There’s really nowhere else to go in terms of funding,” Doty Cabrera said. “We’re already maximizing local spending to try to support these services, and if the federal funding were taken away, it would just put additional pressure on the state budget that obviously is already facing a tremendous number of pressures.”
Federal Medicaid dollars are a significant portion of counties’ mental health budgets. In Los Angeles County, for example, 30% of the county’s annual budget for its behavioral health services department comes from Medicaid, according to the department. In Santa Clara County, about a quarter of it does.
“So when you’re talking about a quarter of the funding for a system, you’re talking about the ability of the entire system to function,” said James Williams, county executive for Santa Clara County.
Will Trump extend California health waivers?
California relies on special permission, or “waivers” from the federal government to be able to use Medicaid dollars to fund non-traditional services, such as access to a care coordinator, housing navigation, rental deposit aid, and medically tailored meals. Experts say these types of support services go hand-in-hand with successful behavioral health care, and in the long run should save the state and feds’ money by helping people avoid costly emergency room care.
“Waivers are about granting some flexibility so that you can deliver more holistic services,” Williams in Santa Clara County said. “And one of the biggest challenges in behavioral health care, and this is especially true for substance use care, is having people make it through a course of treatment.” To increase people’s chances, you need things such as stable housing.
Some of these support services are just now starting to reach people. But their continuation is also in the feds’ hands. The federal government has the power to rescind the waivers or let them expire.
Two waiver programs are seen as key to California’s behavioral health transformation because they extend Medicaid funding and flexibilities for these support services. These are BH-Connect, which was just approved by the Biden-Harris administration in December, and CalAIM, for which federal approval is set to expire at the end of 2026.
The Trump administration has not indicated whether it will renew the CalAIM permissions, but given the discussion of Medicaid funding cuts, it is creating some anxiety over the future of the program.
Michael Schrader, chief executive of the Central California Alliance for Health, the local Medicaid plan for people in Merced, Santa Cruz and neighboring counties, said he has been hearing concerns about this from providers in his network.
“Providers are wondering, ‘Do we keep making investments in CalAIM?’” Schrader said.
“I’ve got clinics saying, ‘I did what you asked me to do. I stepped up and I hired community health workers, I hired enhanced care managers, I put together structured programs, we’re serving these people, and I continue to make these investments thinking this is long term, and now I don’t know.’”
Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a price they can afford. Visit www.chcf.org to learn more.
This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.