Newsom Budget Highlights Healthcare Cost Pressures and Market Concentration, With No New Small Business Investment

“As a result of ongoing revenue volatility, structural deficits and ongoing uncertainty on the federal level, it’s no surprise that Gov. Newsom’s proposed budget for 2026-2027 offers no new investment in California’s small businesses. This failure to make additional investments in small businesses could have a significant and lasting impact on entrepreneurship as the combination of market concentration and consolidation, tariffs, growing healthcare costs and broad economic uncertainty, along with a wide-ranging pullpack in dedicated federal resources, are pushing many small firms to the brink.

The governor’s budget also confirms some of the ways in which HR 1, The One Big Beautiful Bill Act, stands to impact California. For example, changes made to Medicaid by HR 1 are estimated to increase Medi-Cal costs by $1.1 billion - $1.4 billion. Since HR 1 also delays or adjusts federal reimbursements to the state, California must spend approximately $2 billion more from its own General Fund on Medi-Cal than was expected when the 2025 Budget Act was adopted. 

Additionally, because of HR 1 California will begin to apply federal Medicaid work requirements to state-funded coverage populations, moving immigrants, as well as those with certain humanitarian visas, into restricted-scope health coverage effective 10/1, rather than backfilling coverage for those groups with the support of state funds. What’s more, other cuts made to Medi-Cal coverage in the previous budget are maintained including:

• A freeze on new enrollment for undocumented adults (effective 1/1/26);

• Elimination of dental coverage for unsatisfactory immigration status (UIS) populations (effective 7/1/26); and

• A new $30/month premium for UIS populations (starting 7/1/27).

These budget provisions serve as a reminder of the importance of California’s Office of Health Care Affordability (OHCA) as well as legislation like AB 1415 (Bonta), which targets consolidation and limits private equity-driven market concentration in healthcare. 

Despite the static funding levels for small business programs, we are encouraged to see that Gov. Newsom is asking that California maintain funding for the Department of Financial Protection and Investment (DFPI).  This is important because even though DFPI doesn't enforce antitrust law, it does have authority to examine anticompetitive conduct, like automated underwriting and algorithmic pricing. This is critical at a time when the federal agencies like the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) have been drastically reduced in terms of scope and staff.  

Ultimately, the current fiscal context in California affects all small business policy priorities. Without additional sources of revenue generation, such as closing corporate loopholes that put small business owners at a disadvantage as long as new investments are constrained due to the structural deficit and projected multi-year deficits, most policy priorities will need to advance through competition-enforced policy reforms without a large fiscal tag, reallocations, or some revisions in May. We hope that Gov. Newsom will continue to work with lawmakers to prioritize small business investment going forward, even as they are forced to make difficult decisions about how to  generate revenue.”