SACRAMENTO BUSINESS JOURNAL: SACRAMENTO’S ECONOMY IS AT RISK IF CONGRESS CUTS FUNDING FOR THE FEDERAL MEDICAID PROGRAM, AFFECTING JOBS, REAL ESTATE AND WORKFORCE STABILITY

Sacramento’s economy is at risk if Congress reduces funding for the federal Medicaid program, according to health care and business leaders who say the reductions could ripple through multiple industries, affecting jobs, real estate and workforce stability.

President Donald Trump has said that he won't cut funding for Medicaid, the federal government's health care program for low-income Americans. However, the budget resolution approved by the House of Representatives on Feb. 25 calls for $2 trillion in federal budget cuts, including $880 billion in programs overseen by the House Energy and Commerce Committee. It would be difficult or impossible for the committee to achieve a cut of that magnitude without large cuts to Medicaid, experts have said.

The budget cuts are meant to partially offset the cost of extending tax cuts approved in 2017 during Trump's first administration.

In California, Medicaid is implemented through the Medi-Cal program, used by 15 million Californians, including 320,000 in Sacramento’s 7th Congressional District alone.

“These cuts are not just about health care — they threaten the entire economic structure of our region,” said U.S. Rep. Doris Matsui, D-Sacramento, at a recent news conference hosted by WellSpace Health. “Medicaid is the backbone that keeps our workforce healthy and our businesses running.”

Health care is part of the foundation of Sacramento’s economy. It's the region's largest private-sector employer and its largest employer overall outside of government.

Major providers — including Kaiser Permanente, Sutter Health and Dignity Health — depend on Medi-Cal reimbursements to keep facilities running and staff employed. If Medicaid funding shrinks, the entire system faces financial strain.

“Sacramento’s economy is service-sector driven, and health care is at its core,” said Sanjay Varshney, chief economist and publisher of the Sacramento Business Review and a finance professor at California State University Sacramento. “Compared to wealthier regions like the Bay Area or Los Angeles, Sacramento has a higher percentage of residents relying on Medicaid, making us more vulnerable to federal funding cuts.”

The effects of Medicaid reductions could extend beyond hospitals, affecting businesses that employ low-income and hourly workers.

“A lot of local employers don’t realize how many of their workers depend on Medicaid,” Varshney said. “If they lose coverage, it doesn’t just mean more ER visits — it means a workforce that is sicker, less productive and more costly to insure.”

Industries with large numbers of hourly workers, including hospitality, construction and food service, could see rising absenteeism and turnover rates as employees face barriers to accessing care.

“If you run a restaurant and half your staff relies on Medicaid, these cuts could mean more employees calling out sick, spending hours in the ER instead of at work," said Jonathan Porteus, CEO of WellSpace Health, a nonprofit health system serving underserved neighborhoods. “That’s a real-world impact on the local economy."

If Medicaid funding is significantly reduced, Sacramento could see three economic effects: health care job losses, commercial real estate and infrastructure, and workforce productivity.

Hospitals, clinics and medical offices are among Sacramento’s largest employers, and any loss of Medi-Cal funding could stall hiring or trigger layoffs.

“This isn’t just about doctors and nurses — it’s the entire health care ecosystem: medical assistants, billing specialists, receptionists,” said Dr. Janine Bera, chief medical officer at WellSpace Health.

A hiring slowdown would also halt expansion projects that bring new jobs to the region.

“We were planning a new health center in Placer County that would serve thousands of patients,” Bera said. “Without Medicaid dollars, we can’t sustain it.”

Health care anchors much of Sacramento’s commercial real estate market, with hospitals and clinics occupying millions of square feet.

“These cuts would be an existential threat — not only to the sustainability of our health system but also to the infrastructure that has been built over the last 15 years,” said Francisco Silva, CEO of the California Primary Care Association.

Medical office leasing and construction projects could stagnate, impacting property owners, developers and construction workers.

Lack of insurance leads to delayed preventive care, increasing chronic illnesses among workers.

“When people can’t afford routine checkups, small health issues become major medical problems,” Bera said. “That means more sick days, lower productivity and higher business costs."

Porteus added that Medicaid reductions would drive more uninsured patients into emergency rooms, further increasing costs for hospitals and private insurers.

“If you remove Medicaid dollars from primary care, patients don’t disappear,” Porteus said. “They just end up in the ER, which costs five to 10 times more.”

Historically, California has stepped in to protect Medi-Cal funding when it was under threat, but the state faces its own budget pressures, possibly limiting its ability to offset federal cuts.

“California has always tried to fill the gaps left by federal reductions,” Varshney said. “But with the state already in budget crisis mode, there’s not much room left to maneuver.”

For some small businesses, the impact may be less direct but still significant. While many employees may not have relied on Medi-Cal, an increase in uncompensated care costs could lead to higher premiums for businesses that provide private insurance.

“These costs don’t disappear — they get passed on to hospitals, insurers and employers,” Varshney said.

The proposed Medicaid cuts are still being debated in Congress, but health care and business leaders are bracing for impact.

The Business Journal reached out to the White House and the offices of U.S. Reps. Tom McClintock, R-Elk Grove, and Kevin Kiley, R-Rocklin, for comment on the possibility of Medicaid cuts. As of press time, none had provided comment. McClintock and Kiley both voted in favor of the House budget resolution.

Kiley, in a recent speech on the House floor, said California is spending $9.5 billion in the current fiscal year on Medi-Cal benefits for undocumented immigrants.

"Over 10 years, that will add up to hundreds of billions that could have improved care for vulnerable California citizens," Kiley said in a Feb. 26 post on X, formerly known as Twitter.

California's budget includes $161 billion for Medi-Cal, more than half of which is paid for with federal funds, according for the California Health Care Foundation. The California Budget & Policy Center projects that $10 billion to $20 billion or more in Medi-Cal funding could be at risk under Republican proposals.

Matsui urged business leaders and employers to stay engaged as federal budget negotiations unfold.

“This isn’t just a health care issue,” Matsui said. “It’s an economic issue that affects every employer, every family and the entire financial future of our region.”

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