A new California healthcare tax that’s expected to jack up family premiums by hundreds of dollars annually isn’t even legal, according to a group of doctors and insurance firms.
The California Medical Association and the California Association of Health Plans, which represent doctors and insurers respectively, accused state officials of violating Prop. 35, a 2024 initiative approved by 68% of voters that set certain limits on healthcare taxes.
The healthcare tax — known as the managed care organization, or MCO tax — was passed in June by the California Legislature and signed into law by Gov. Gavin Newsom.
The tax will raise premiums by $8.85 per month per enrollee, or $100 annually for an individual and $400 for a family of four, insurance firms have estimated. California officials claimed the new tax was needed to make up revenue shortfalls from President Donald Trump’s federal funding cuts.
“California should not resolve its budget shortfall by imposing a massive tax increase on health care costs for working families,” said Charles Bacchi, President and CEO of the California Association of Health Plans, in a statement.
“This lawsuit is about a simple principle: the state has to follow the law,” added Dustin Corcoran, CEO of the California Medical Association.
The tax on healthcare insurers was one of two new levies approved by California lawmakers in June that the California Taxpayers Association labeled the “the largest tax increase in state history.”
The other was a new sales tax on software downloads, which applies to common programs like Slack, Abobe or TurboTax.
The taxes were negotiated as part of Newsom’s record-breaking $350 billion state budget, as Democrats sought to plug revenue gaps they blamed on Trump and congressional Republicans’ funding cuts.
The lawsuit asks the court to declare the healthcare tax invalid and to require California to follow funding requirements set forth in Prop. 35.
Newsom’s office was contacted for comment.
