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.