California medical groups sue Newsom over healthcare tax

The California Medical Association and the California Association of Health Plans have filed a lawsuit against Governor Gavin Newsom and the state Legislature in the California Supreme Court. The plaintiffs allege that a recently approved healthcare tax violates Proposition 35, a 2024 voter initiative that limits healthcare taxes and mandates revenue be directed toward specific purposes.

The lawsuit targets the managed care organization (MCO) tax, which was passed by the Legislature in June. While California has taxed health insurers for over 20 years to fund Medi-Cal, the new legislation substantially increases the tax rate on private plans. Health insurers have indicated they intend to pass these increased costs directly to consumers, which could lead to significant spikes in insurance premiums for Californians.

A spokesperson for the Department of Finance stated the state aims to balance patient affordability with the need to address large-scale federal Medi-Cal cuts. A spokesperson for Governor Newsom expressed disagreement with the lawsuit, stating the state believes the courts will rule in its favor.