From Managed Care to Fee-for-Service: What California's Latest Budget Deal Means for the State’s Undocumented Early Childhood Population

Key Points:

• The 2026-27 budget deal will move over 2 million Medi-Cal members, including 38,000 children from birth to age five, from Medi-Cal managed care to fee-for-service.

• Transitioning Medi-Cal members from managed care to fee-for-service will disrupt the whole-person-centered coordination ecosystem that is a hallmark of the managed care delivery system.

• While the state is providing $39 million in one-time support for the initial transition from managed care to fee-for-service for these families, they will still be responsible for navigating a complex health care system and long-term care coordination once state funding runs out. The state has not indicated if it plans to provide future care coordination support for these families.

Governor Newsom and the state legislature finalized a plan, as part of the 2026-27 budget deal, that will significantly impact how children with unsatisfactory immigration status receive services through Medi-Cal. In 2016, California passed SB 75, which expanded full-scope Medi-Cal to all low-income children, regardless of immigration status. This meant that children with unsatisfactory immigration status (UIS) were eligible for Medi-Cal through our managed care delivery system, rather than relying on emergency medical care to meet all of their healthcare needs, including their preventative care needs. This week, in an effort to maintain compliance with new federal Medicaid provisions and cut costs within the state’s Medi-Cal program, Governor Newsom and the state legislature have agreed to a budget deal that will transition all members of the UIS population on Medi-Cal from managed care to fee-for-service (FFS) beginning as early as January 1, 2027.

This transition represents a fundamental shift for the over 2 million UIS Medi-Cal members, of which an estimated 38,000 are from birth to age five. Managed care prioritizes whole-person care, emphasizing prevention and addressing the upstream social determinants of health (SDOH) to deliver wraparound care coordination for its members. Every Medi-Cal member receiving services through managed care has a primary care provider who helps them navigate the health care system, schedule specialist referrals, and ensure that families with young children access all the Medi-Cal benefits and services they are eligible for. While in practice many Medi-Cal managed care plans fall short of meeting these expectations for kids, there are care management expectations as part of the managed care delivery system and accountability mechanisms in place to ensure they improve the quality of their service delivery.

Under the FFS delivery system, care coordination and navigation are the responsibility of the Medi-Cal member. There is no entity accountable for closing referral loops, tracking a member across specialists, or proactively managing complex/chronic conditions. These families will now be forced to navigate a complex health care system on their own, with limited navigation support. As part of managed care, these families could be eligible for benefits such as enhanced care management or community supports that were designed to address the SDOH needs of Medi-Cal members. This includes support for mental and behavioral health care coordination, connections to home and community-based supports delivered by organizations such as county First 5 Commissions, coordination of specialists’ appointments with a member’s primary care provider, and support for enrolling in other social services such as SNAP.

As the state continues to double down on its emphasis on supporting the SDOH needs of Medi-Cal members, its new plan to transition the UIS population to FFS deals a significant blow to supporting immigrant communities that have continually been attacked under the current federal administration. Transitioning the UIS population from managed care to FFS will also impact how we monitor care quality for Medi-Cal members. Health plan quality measures like child vaccination rates, well-child visits, and developmental screening are unique to managed care and not part of the FFS delivery system, making it more difficult to ensure that these members receive timely, high-quality care. Although under federal and state law, all children with Medi-Cal coverage are entitled to a robust set of benefits and services, in a historically managed care oriented delivery system, California does not have the same oversight and accountability structures for members in FFS.

It is important to note that the budget deal includes $39 million in one-time funding for care coordination resources and community navigators to support the UIS population during the transition to FFS. This is meant to mitigate some of the care disruption that is inevitable during the transition. In addition, the UIS population will still be able to access a lighter-touch form of care coordination support through the community health worker services benefit. Taken together, this will likely not offset the impacts of losing access to a system designed to prioritize whole-person care and prevention.

The state estimates the transition will result in over $580 million in savings for FY 2026-27 and $1.5 billion in ongoing savings. These savings assumptions are based on reduced administrative costs and lower utilization of Medi-Cal services. In its analysis of the latest budget, the Legislative Analyst’s Office (LAO) poses critical questions for the state that challenge its savings estimates. Key questions include, how will DHCS prevent future budget volatility after UIS enrollees transition to FFS, does DHCS anticipate a significant change in UIS enrollee utilization trends because of the FFS transition, and does DHCS plan to offer more comprehensive care coordination services for UIS enrollees in the future?

Although transitioning the UIS population, including young children, from managed care to FFS doesn’t change who is eligible for Medi-Cal services, it strips away critical managed care-based coordination infrastructure that was meant to be the catalyst for reaching this population in a targeted and effective way. As we await more details on how the state plans to implement care coordination to support the transition and how future budget decisions will impact the UIS population, it will be up to the statewide network of trusted advocates and community providers to ensure families with young children understand what this change means for them and how they can continue accessing crucial Medi-Cal services.