California faces unlikely tax revolt amid billions in illegal immigrant healthcare costs
California to Raise Health‑Plan Tax on Private Insurers in Bid to Shore Up Medi‑Cal
San Francisco – Governor Gavin Newsom has unveiled a plan that would add a new levy on private health insurance plans beginning in 2027, a move designed to preserve the state’s Medi‑Cal budget after federal rules curtail the program’s existing revenue‑generating mechanism. If approved, the tax could raise premiums for Californians with commercial coverage by as much as $100 per person, or roughly $400 for a typical four‑member family.
The proposal follows a federal decision that will end the state’s ability to use its current health‑plan tax structure to draw matching funds for Medi‑Cal after 2026. California’s leaders say the new tax is necessary to keep the program afloat after the federal government tightens the rules that allow states to tax commercial health plans to finance Medicaid spending.
“We’re looking at a $12.4 billion cost in 2025 just for providing healthcare to undocumented immigrants,” said Brian Blase, president of the right‑leaning Paragon Health Institute. “If you expand coverage to those who aren’t eligible, the state has to raise taxes to make the numbers work.” Blase’s comments were echoed in a Fox News interview in which Dr. Oz explained that the One Big Beautiful Bill Act limits California’s ability to tax Medicaid insurers alone. “California is proposing to raise the health‑insurance tax on people that have private coverage,” Oz told reporters. “The estimates are that would increase insurance for families by $400 a year.”
The tax has sparked a rare coalition of opposition. The California Medical Association (CMA) and the California Association of Health Plans (CAHP) – groups that normally find themselves on opposite sides of health policy debates – have filed a lawsuit to block the measure. They argue that it violates the limits imposed by Proposition 35, a voter‑approved law that caps how much the state can tax commercial health‑plan enrollment. The CMA’s CEO, Dustin Corcoran, said in a statement: “California voters passed Proposition 35 and made it law. The state does not get to ignore that law simply because following the law is inconvenient.”
Health insurers warn that the burden will likely be passed on to consumers. “The revised tax could increase premiums by about $100 per person per year,” said a spokesperson for CAHP. “A family of four could face an additional $400 in annual premiums.”
Newsom’s administration maintains that the tax is legal under Proposition 35 and will be reviewed by the courts. Tara Gallegos, the governor’s spokeswoman, said the state believes a judicial decision will uphold the measure. “The state disagrees with the claims that the tax violates Proposition 35, and we believe the courts will agree,” Gallegos said.
H.D. Palmer, deputy director for external affairs at the California Department of Finance, explained the tax’s design. “We’re submitting a proposal with two tracks,” Palmer said. “One track is similar to the existing taxing scheme but may conflict with federal law. The other track conforms to the One Big Beautiful Bill Act by shifting costs toward private plans.” He added that if the federal government declines to approve the tax similar to the current system, Proposition 35 may sunset under current law.
California’s push for the tax comes against a backdrop of an ongoing exodus of residents and businesses. Between 2010 and 2024, roughly 10 million people moved out of the state, while about 7 million moved in. Many cite the high cost of living as a primary reason for leaving, a trend that has raised concerns about the state’s fiscal outlook. Critics fear that higher premiums could push more people to relocate or leave the state’s workforce, further eroding California’s income‑tax base.
The federal government’s restrictions on health‑plan taxes have left California with limited options to keep Medi‑Cal adequately funded. The new levy, if approved, would mark the first time the state has considered taxing commercial health plans to support Medicaid. The debate is set to continue as lawmakers, insurers, doctors, and citizens weigh the costs and benefits of the proposal.