SACRAMENTO, Calif. (AP) — Gov. Gavin Newsom wants California to stop enrolling more low-income immigrants without legal status in a state-funded health care program starting in 2026 and begin charging those already enrolled a monthly premium the following year.

The decision is driven by a higher-than-expected price tag on the program and economic uncertainty from federal tariff policies, Newsom said in a Wednesday announcement. The Democratic governor’s move highlights Newsom’s struggle to protect his liberal policy priorities amid budget challenges in his final years on the job.

California was among one of the first states to extend free health care benefits to all poor adults regardless of their immigration status last year, an ambitious plan touted by Newsom to help the nation’s most populous state to inch closer to a goal of universal health care. But the cost for such expansion ran $2.7 billion more than the administration had anticipated.

Newsom in March suggested to reporters he was not considering rolling back health benefits for low-income people living in the country illegally as the state was grappling with a $6.2 billion Medicaid shortfall. He also repeatedly defended the expansion, saying it saves the state money in the long run. The program is state-funded and does not use federal dollars.

Under the plan, the changes won’t impact children

Under Newsom’s plan, low-income adults without legal status will no longer be eligible to apply for Medi-Cal, the state’s Medicaid program, starting in 2026. Those who are already enrolled won’t be kicked off their plans because of the enrollment freeze, and the changes won’t impact children. Newsom’s office didn’t say how long the freeze would last.

Starting in 2027, adults with “unsatisfactory immigration status” on Medi-Cal, including those without legal status and those who have legal status but aren’t eligible for federally funded Medicaid, will also have to pay a $100 monthly premium. The governor’s office said that is in line with the average cost paid by those who are on subsidized heath plans through California’s own marketplace. There’s no premium for most people currently on Medi-Cal.

In total, Newsom’s office estimated the changes will save the state $5.4 billion by 2028-2029.

“The state must take difficult but necessary steps to ensure fiscal stability and preserve the long-term viability of Medi-Cal for all Californians,” his office said in an announcement.

The Medi-Cal expansion, combined with other factors such as rising pharmacy costs and larger enrollment by older people, it has forced California to borrow and authorize new funding to plug the multibillion hole earlier this year. California provides free health care to more than a third of its 39 million people.

Wildfires, tariff policies and health costs strain California’s budget

The proposals come ahead of Newsom’s scheduled presentation on the updated budget. Recovery from the Los Angeles wildfires, changing federal tariff policies and the expensive health care expansion are putting a strain on California’s massive state budget. Lawmakers are expecting a multibillion dollar shortfall this year and more deficits projected for several years ahead.

Newsom is expected to blame President Donald Trump’s tariff policies for the shortfalls, estimating that the polices have cost the state $16 billion in tax revenues. California is also bracing for major budget hits if Republicans in Congress follow through with a plan to slash billions of dollars in Medicaid and penalize states for providing health care to immigrants without legal status.

Newsom now opens budget negotiations with lawmakers and it’s unclear how Democrats who control the Legislature will react to his plan to freeze new Medi-Cal enrollment for some immigrants. A final budget proposal must be signed by June. California’s budget is by far the largest among states.

“This is going to be a very challenging budget,” Assemblymember Jesse Gabriel, who chairs the budget committee, said before Newsom’s proposals were announced. “We’re going to have to make some tough decisions.”

The budget proposals presented this week will build in some of the impacts from federal policies, but many unknowns remain.

California could face bigger budget deficits in coming years

The governor already said he’s planning to scale back on baseline spending this year. Analysts and economists also warn that California will face bigger deficits in the tens of billions of dollars in coming years due to economic sluggishness and stock market volatility brought on by the tariff war.

The budget Newsom first proposed in January included little new spending. But it allows the state to fully implement the country’s first universal transitional kindergarten program and increase the state’s film and TV tax credit to $750 million annually to bring back Hollywood jobs that have gone to New York and Georgia. He recently called on Trump to pass a $7.5 billion film tax credit at the federal level.

Last year, Newsom and the Legislature agreed to dip into the state’s rainy day fund, slash spending — including a nearly 10% cut for nearly all state departments — and temporarily raise taxes on some businesses to close an estimated $46.8 billion budget deficit.