California Doctors, Health Plans Sue Newsom Over MCO Tax Hike
The California Medical Association and California Association of Health Plans filed suit Friday with the California Supreme Court against Gov. Gavin Newsom and the Legislature, alleging a June managed care organization (MCO) tax increase on private health plans violates Proposition 35, a 2024 voter initiative limiting healthcare taxes and dedicating revenue to Medi-Cal. The groups say the tax hike, prompted by federal changes to allowable healthcare tax structures, will raise individual premiums by about $100 annually ($400 for a family of four) as insurers pass costs to consumers. The state structured two competing tax versions for federal approval, one compliant with Prop 35 but likely to be rejected federally, and one that meets federal rules but largely bypasses the initiative, to preserve the revenue stream amid federal Medicaid funding cuts. No effective date or ruling timeline was given; the case is pending before the state Supreme Court.