The History of California's Medicaid Program Exposes the Dangers of Slashing Funding

As congressional Republicans work on a massive bill that enacts much of President Donald Trump’s agenda, one of the biggest points of contention is potential cuts to Medicaid, the joint federal and state program that has provided health insurance for low-income Americans since 1965. Today, it provides coverage for 20% of Americans—72 million people.

The original budget passed by House Republicans called for steep spending cuts which experts said were nearly impossible without slashing Medicaid spending. While Trump has repeatedly vowed that Medicaid cuts are off the table, House Republicans have continued to debate potential cuts.

There is broad consensus among economists and public health experts that large cuts to Medicaid—which House hardliners seem to be demanding as their price to enact Trump’s tax cuts and extensions—will have dire consequences for healthcare outcomes and the finances of low-income families.

But to fully comprehend what slashing Medicaid spending would mean for the millions of people who depend on it, Americans need to understand the creation and evolution of the program, its relationship to the broader healthcare and political landscape, and the human cost of prior budgetary rollbacks.   

The history of Medi-Cal, California’s Medicaid program and the largest and most expansive such program in the country, provides this crucial background. It shows how Medicaid is the byproduct of battles among grassroots activists, policymakers, corporate employers, trade associations, physicians, insurance companies, and labor unions. Despite its many flaws and limitations, the system that emerged from these fights is a triumph of social care within a notoriously fractured, privatized, and stratified national healthcare system.

Medi-Cal’s history illuminates why Medicaid is worth not only saving but strengthening—and it warns that past efforts to roll back Medicaid funding have resulted in disastrous human costs.

Medi-Cal, and Medicaid more broadly, emerged out of larger struggles over healthcare in the 1930s and 1940s. Despite intense lobbying by labor unions, progressive federal administrators, and African-American organizations, a national health insurance system was not among the sweeping social welfare reforms enacted as part of President Franklin Roosevelt’s New Deal. Many in Roosevelt’s administration had hoped to create such a program, but fierce opposition from Republicans and the powerful American Medical Association (AMA) blocked a bill to do so multiple times in the early-to-mid 1940s.

In California, progressives attempted to pass a single-payer healthcare system at the state level which, they hoped, might serve as a model for a national system. The “Warren Plan,” as it became known—named for California Governor Earl Warren—was popular among Californians. But the California Medical Association (CMA) undertook an aggressive lobbying and public relations campaign against it. They launched a “Voluntary Health Insurance Week” with a drive for Californians to purchase private plans, and they flooded newspapers and airwaves with the slogan “Political medicine is bad medicine.” Despite the governor’s popularity, this campaign killed the Warren plan. 

Instead of the program providing a national model, the AMA adopted the CMA’s political tactics and slogans to help defeat the national single payer proposal.

Read More: Republican Lawmaker Tells Trump He May Vote Against GOP Budget Bill Over Medicaid Cuts

By the 1950s, private employer-provided plans had become the dominant form of health insurance in the U.S. With universal healthcare soundly defeated, reformers began to limit their efforts to passing healthcare coverage for the poor and elderly—particularly vulnerable groups that private insurance deemed too risky to cover. In 1965, these efforts culminated in the enactment of Medicare, a federally administered medical insurance program for those over the age of 65, and Medicaid, a means-tested program jointly funded by the federal government and the states.

California’s state-administered Medicaid program, Medi-Cal, launched in 1966, immediately providing coverage for over a million Californians. Medi-Cal covered single-parent families with children, low-income elderly people, those with disabilities, and (within a few years) certain “medically indigent adults.”

But establishing Medi-Cal wasn’t without a fight, and these battle both mirrored and influenced healthcare politics on the national level. By 1970, the state costs for Medi-Cal had almost quadrupled. Spiraling costs aroused the ire of Governor Ronald Reagan, who became an outspoken opponent of Medi-Cal. As a program for the poor bearing the stigma of “welfare,” Medi-Cal seemed to the conservative Reagan to be proof that government benefits would inevitably lead to soaring costs for taxpayers. Medi-Cal “is sicker than the people it is intended to aid,” Reagan said in 1967, and “it not only can, but most assuredly will, bankrupt our state.”

Reagan was determined to address the crisis of healthcare costs not through expanded taxation, but by privatization and dramatic cuts to services. Mirroring developments in the Nixon administration, Reagan and his advisors were drawn to novel prepaid group plans known as Health Maintenance Organizations (HMOs). Under the HMO model, rather than reimbursing individual providers based on the services that they performed, Medicaid would reimburse narrow networks of providers in advance. Reagan and his advisors hoped HMOs would reduce costs, increase efficiency, and channel government funds to private insurance programs.

During the course of the 1970s, these developments led to hundreds of thousands of Medi-Cal patients being enrolled in one of numerous new prepaid plans, the majority of them for-profit. “Another gold rush is underway at the capital,” read a 1972 Los Angeles Times expos , “only this time the nuggets are a new form of franchise—state Medi-Cal contracts to provide health care for the poor.” The profit motive meant that HMO administrators had an incentive to discourage patient utilization of medical services, often leading to understaffed facilities in an attempt to reduce costs and increase profits.

The result was shoddy care, which prompted organized grassroots resistance. In hearings throughout California, patients protested against unavailable doctors, a lack of translation services, and long wait times; state investigators found poor record keeping, delayed surgeries, and even doctors practicing without a license. But it in the eyes of many policymakers, soaring healthcare costs outweighed these concerns, and the HMO model became entrenched in California and expanded to other states.

When Reagan became president in 1981, he took his enthusiasm for the for-profit prepaid group plan model to the White House. Later that year, as part of his broader agenda to scale back the welfare state and government entitlements, the Reagan Administration pushed a bill through Congress that partially deregulated HMOs, which helped to entrench the managed care model in Medicaid financing and delivery on the national level.

In 1982, in response to a healthcare budget crisis exacerbated by the federal cuts, California stopped providing Medi-Cal for healthy “medically indigent” adults. Beginning in 1983, 270,000 low-income adults suddenly became uninsured in California. The result was a sharp decline in healthcare access, satisfaction, and outcomes. Both in the Golden State and nationally, growing crises around AIDS, gun violence, homelessness, and drug abuse coincided with a steep rise in the uninsured rate.

Read More: The Cruelty of Medicaid Work Requirements

Even so, in the 1990s and 2000s, conservatives renewed their attack on Medi-Cal and the broader Medicaid program, as well as other welfare programs like Aid to Families with Dependent Children and food stamps. In 1995 and again in 2004, congressional Republicans tried to change Medicaid’s funding mechanism from matching grants to “block grants,” which would allot federal funding to states according to a predetermined formula regardless of need. Experts determined that a block grant structure would cost as many as 6 million people their coverage.

These proposals failed, and over the past 15 years, Medi-Cal has grown rapidly alongside the national Medicaid system. In 2010, the Patient Protection and Affordable Care Act (ACA, or “Obamacare”) significantly expanded Medicaid by broadening eligibility to include non-elderly adults. Between December 2012 and December 2014, the ACA expanded the Medi-Cal population by 4.5 million, growing from 7.6 million to over 12 million—a nearly 60% increase.

In recent years, however, Medi-Cal, like many state Medicaid systems, has faced a set of complex and multifaceted challenges. These include Medicaid “unwinding” after COVID-era expansions, an escalating homelessness crisis, and deep-seated inequities of healthcare access and outcomes correlated with race, class, and immigration status. 

Nevertheless, Medi-Cal remains one of the most progressive and comprehensive Medicaid systems in the country. Today, it covers more than 15 million people—an astonishing one in three Californians. In 2023, California became the first state in the country to extend Medicaid coverage to all eligible children and adults regardless of immigration status. In recent years, innovative programs have applied Medi-Cal funding to extend services beyond traditional medical care to other areas that impact people’s health, including nutritional support, housing subsidies, and transportation assistance for the unhoused and other vulnerable populations.

The history of Medi-Cal highlights how Medicaid has from its inception been a site of political contest over competing visions of social welfare and the public good. Any potential cuts to Medicaid would only be the latest chapter in a long struggle over who deserves healthcare and what Americans are willing to invest in social well-being. The history of Medi-Cal also shows how past attempts to dismantle and privatize the Medicaid system have consistently led to poorer health outcomes and a less equitable healthcare system.

Ben Zdencanovic is a postdoctoral associate at the Luskin Center for History and Policy at the University of California, Los Angeles. He is the author Island of Enterprise: The United States in a World of Welfare (under contract, Princeton University Press) and he is working on a new book on manpower, race, and the War on Poverty. 

Made by History takes readers beyond the headlines with articles written and edited by professional historians. Learn more about Made by History at TIME here. Opinions expressed do not necessarily reflect the views of TIME editors.