California Healthcare Tax Challenged as Illegal by Medical and Insurance Groups
Doctors and insurers accuse state officials of violating voter-approved Proposition 35 with the new managed care organization tax.
A new California healthcare tax, projected to significantly increase annual premiums for families, is facing legal challenges from physician and insurance industry groups who argue it violates state law. The California Medical Association and the California Association of Health Plans contend that the managed care organization (MCO) tax infringes upon Proposition 35, a 2024 voter initiative that established limitations on healthcare taxes. This proposition was approved by 68% of California voters.
The MCO tax was passed by the California Legislature in June and subsequently signed into law by Governor Gavin Newsom. Insurance companies estimate the tax will lead to a monthly increase of $8.85 per enrollee, equating to approximately $100 annually for individuals and $400 for a family of four. State officials have stated the tax is necessary to offset revenue shortfalls attributed to federal funding cuts, including those from the Trump administration.
Charles Bacchi, President and CEO of the California Association of Health Plans, issued a statement asserting that "California should not resolve its budget shortfall by imposing a massive tax increase on health care costs for working families." Dustin Corcoran, CEO of the California Medical Association, echoed this sentiment, stating, "This lawsuit is about a simple principle: the state has to follow the law."
The California Taxpayers Association has identified this healthcare tax, along with a new sales tax on software downloads, as part of what they are calling "the largest tax increase in state history." The software tax applies to common programs such as Slack, Adobe, and TurboTax.
The challenged MCO tax was negotiated as part of Governor Newsom's record-breaking $350 billion state budget. The budget aimed to address revenue gaps that Democrats attributed to funding cuts imposed by President Trump and congressional Republicans.
The lawsuit filed by the medical and insurance groups seeks a court declaration that the healthcare tax is invalid and demands that California adhere to the funding requirements outlined in Proposition 35. Governor Newsom's office was contacted for comment.