California proposes health plan tax to address rising Medi-Cal costs

California Governor Gavin Newsom and Democratic lawmakers are supporting a revised health plan tax to address soaring Medi-Cal costs. The move follows new federal restrictions on how health plan taxes can be used to secure federal matching funds.

Providing health care to undocumented immigrants is estimated to have cost California approximately $12.4 billion in 2025. To preserve Medi-Cal financing, the proposed tax would increase levies on private health plans starting in 2027, provided federal officials approve the measure.

A coalition of doctors and health insurers has filed a lawsuit against the plan, alleging the tax violates voter-approved limits set by Proposition 35. Insurers warn that the shift in financial burden could increase annual costs for privately insured residents by an estimated $100 per person, or roughly $400 for a family of four.