{"id":718467,"date":"2026-06-22T03:16:20","date_gmt":"2026-06-22T03:16:20","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/718467\/"},"modified":"2026-06-22T03:16:20","modified_gmt":"2026-06-22T03:16:20","slug":"california-prepares-to-raise-a-health-insurance-tax","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/718467\/","title":{"rendered":"California prepares to raise a health insurance tax"},"content":{"rendered":"

This story was originally published by CalMatters<\/a>. Sign up<\/a> for their newsletters<\/p>\n

Legislators this week approved a health tax bill meant to continue critical federal funding for the state\u2019s Medicaid program, also known as Medi-Cal. Their approval comes despite warnings from health industry leaders that the tax, as designed, will raise premiums for privately insured Californians.<\/p>\n

New federal rules are forcing the state to restructure its managed care organization tax, or MCO tax, which the state collects from health insurance plans that coordinate care for their members. California has been charging Medi-Cal insurance plans at a higher rate than private plans.<\/p>\n

The state\u2019s newly-designed solution, Senate Bill 125<\/a>, will lower the tax on Medi-Cal plans and raise the tax on private plans to the same level. If finalized by the governor, and accepted by the federal government, the new plan would shift more of the cost burden onto people who buy private insurance but bring in less revenue overall.<\/p>\n

Senate President Pro Tem Monique Lim\u00f3n<\/a>, a Santa Barbara Democrat, told reporters earlier this week that there was no perfect plan for redesigning the tax and that the Senate still has concerns, but the proposal they voted through is one that would bring in money quickly.<\/p>\n

\u201cWe have as a Senate been very clear that we needed revenue \u2026 it was a matter of making a decision which we could troubleshoot given what is happening at the federal level,\u201d Lim\u00f3n said.<\/p>\n

As part of the tax and spending law Congress passed last summer, the federal government imposed new restrictions on provider taxes, including the one imposed on health plans. Under existing rules, California received almost $8 billion annually<\/a> from this tax; the new limits mean the state will receive billions less. The Legislature\u2019s plan tries to fill at least some of that gap.<\/p>\n

The plan does not directly raise health insurance premiums. Instead it imposes a higher tax on private plans, which have said they\u2019d pass the cost down to consumers.<\/p>\n

The proposal would require all health plans, both public and private, to pay a monthly rate of $8.85 per enrollee \u2013 a total cost of about $1.5 billion a year for private plans. If health plans pass the entire tax to their members, Californians could see about a 1.5% increase <\/a>in their monthly premiums, according to the independent Legislative Analyst\u2019s Office. That\u2019s on top of the yearly premium rate increases <\/a>that people see year to year.<\/p>\n

The California Association of Health Plans, the health insurance lobby, estimates this would translate to consumers paying about $100 more in premiums each year. That means a family of four could be looking at $400 more a year in health premiums.<\/p>\n

Charles Bacchi<\/a>, president of the association, said health plans roll taxes and fees into the administrative portion of premiums. \u201cThat is just actuarial science,\u201d he said. \u201cSo when you increase taxes on health plans and insurers, that is built into premium rates and the customer pays it.\u201d<\/p>\n

Affordability is key concern<\/p>\n

The Legislature\u2019s plan largely mirrors what Gov. Gavin Newsom and his Department of Finance proposed last month. Bacchi argues the state could have imposed a smaller tax to lessen the impact on plans and consumers.<\/p>\n

From left, David Webb talks to Christy McCurdy, a registered nurse, at Hope Clinic in San Jose on Dec. 2, 2019. The clinic provides assistance such as addiction treatment and monitoring chronic conditions to formerly homeless. Photo by Randy Vazquez, Bay Area News Group<\/p>\n

The Department of Finance said it tried to balance affordability for privately insured patients with generating enough revenue to keep the safety net afloat amid federal funding cuts. The department settled on the $8.85 a month assessment because that rate would generate $2.3 billion a year \u2013 roughly the amount that the state generated before 2023 to support Medi-Cal, said H.D. Palmer, a spokesperson for the Department of Finance.<\/p>\n

Of that total, $2 billion would support existing Medi-Cal services, while roughly $300 million would fund previously established rate increases for providers delivering primary, maternal, and mental health care to enrollees, Palmer said.<\/p>\n

Some legislators continued to raise concerns late into the week. Sen. Akilah Weber Pierson<\/a>, a San Diego Democrat, said she found the tax plan \u201cextremely problematic\u201d as she questioned the administration during a hearing Wednesday. \u201cI am very uncomfortable with this proposal and the economic burden it will have on the families I serve as a Senator but also a physician.\u201d She voted for the measure on Thursday.<\/p>\n

Bacchi\u2019s organization, along with physician groups and the California Hospital Association, urged legislators to reject the tax proposal as is.<\/p>\n

\u201cWhat makes this vote especially disappointing is that California leaders continue to talk about affordability as a top priority,\u201d health plans said in a statement after the Assembly approved the measure. \u201cIt is difficult to reconcile those statements with a vote that will increase health insurance premiums on the very people policymakers say they are trying to help.\u201d<\/p>\n

Industry leaders also argued that the tax measure conflicts with Proposition 35<\/a>, which voters passed in 2024 and which limits the taxes charged to private health plans. Prop. 35 also requires that much of the revenue be used to expand Medi-Cal services and increase provider rates, rather than offset general fund spending on the program.<\/p>\n

\u201cRaising health insurance premiums to help balance the state budget is simply robbing Peter to pay Paul,\u201d said Dr. Ren\u00e9 Bravo, president of the California Medical Association, which represents doctors around the state. \u201cIt will only make it harder for families to keep coverage and get the care they need.\u201d<\/p>\n

New federal rules prompt tax redesign<\/p>\n

California is redesigning its MCO tax to comply with new federal rules implemented through H.R. 1, the spending plan Congress approved last year. California currently charges Medicaid plans, which are reimbursed jointly by the state and federal government, a significantly higher tax than private plans. The state then uses revenue from this tax to draw down matching federal funds.<\/p>\n

The Trump administration argues states \u201cexploit\u201d<\/a> this funding mechanism by effectively pushing their share of Medicaid costs onto the federal government. Critics of the tax describe its \u201cnet effect\u201d this way<\/a>: Insurers remain financially whole, federal Medicaid spending increases, and states reduce their own costs.<\/p>\n

To close what federal officials call a \u201cloophole,\u201d the Centers for Medicare and Medicaid Services issued a final rule<\/a> earlier this year prohibiting states from taxing Medicaid plans more than commercial plans. Now that the legislature has approved California\u2019s revised MCO tax plan, Newsom must sign the measure in order for the state to seek approval for it from the federal government.<\/p>\n

Consumer advocates say that maintaining strong revenues from the MCO tax is key to keeping the Medi-Cal program running. But if the state knows that insurers will pass the cost onto private customers through higher premiums, California legislators should ensure the money remains within the health system and improves care.<\/p>\n

\u201cWhat we don\u2019t find acceptable is to have individual healthcare consumers pay increased premiums to support the MCO tax, and then just have that money backfill the general fund,\u201d said Kiran Savage-Sangwan<\/a>, executive director of the California Pan-Ethnic Health Network.<\/p>\n

Because the Legislature\u2019s plan resembles the governor\u2019s proposal, budget experts expect Newsom to sign it as part of the larger budget package. One major hurdle remains, however: federal approval. The Trump administration must approve the state\u2019s revised tax plan for California to continue drawing down federal matching funds.<\/p>\n

The job of lawmakers is to put together a proposal that is compliant with new federal rules, said Adriana Ramos-Yamamoto, a senior policy fellow at the California Budget and Policy Center.<\/p>\n

But, she added, \u201cit\u2019s not a guarantee that the federal government will approve our new MCO tax proposal.\u201d<\/p>\n


\n \"Profile
\n <\/a><\/p>\n

Christopher Kirkpatrick<\/a><\/p>\n

The Fresno Bee<\/p>\n

Christopher Kirkpatrick is senior editor of The Fresno Bee and Vida en el Valle.\n <\/p>\n","protected":false},"excerpt":{"rendered":"This story was originally published by CalMatters. Sign up for their newsletters Legislators this week approved a health…\n","protected":false},"author":2,"featured_media":717391,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[97,252,253],"class_list":["post-718467","post","type-post","status-publish","format-standard","has-post-thumbnail","category-health-care","tag-health","tag-health-care","tag-healthcare"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/718467","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=718467"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/718467\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/717391"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=718467"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=718467"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=718467"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}