Lawsuit Claims California Healthcare Tax Violates Proposition 35
Doctors and health insurers filed a lawsuit Friday alleging that Gov. Gavin Newsom and state lawmakers broke the law by approving a healthcare levy likely to significantly raise insurance costs for residents, according to CalMatters.
- The complaint targets a newly approved managed care organization tax on health plans, arguing it circumvents Proposition 35 passed by voters in 2024.
Lawsuit Filed Against California Over Healthcare Tax and Insurance Premiums
The legal complaint targets the recently passed tax on health plans, known as the managed care organization tax or MCO tax. Filed with the California Supreme Court by the California Medical Association and California Association of Health Plans, the lawsuit claims the state-approved tax circumvents a 2024 ballot initiative that limits healthcare taxes and directs revenue toward specific purposes.
“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,” medical association CEO Dustin Corcoran said in a statement.
State Defense of the Managed Care Organization Tax
Tara Gallegos, a spokesperson for Gov. Gavin Newsom, defended the policy, stating that the tax allows the state to make changes to fund healthcare. “The state disagrees with their claims, and we believe the courts will too,” Gallegos said in an email.
Department of Finance spokesperson H.D. Palmer previously explained that the administration sought to weigh the cost burdens on individuals with private coverage against major reductions in federal Medi-Cal funding. Gov. Newsom stopped short of opposing the 2024 initiative when it was on the ballot, but warned at the time that it would hamstring the state budget.
Historical Context of California Health Plan Taxation
California has imposed levies on health insurers for over two decades to support Medi-Cal, the state’s healthcare initiative for individuals with low incomes. The state historically taxed private health plans at a lower rate than Medi-Cal insurers. In June, however, the Legislature passed a bill substantially raising the tax on private plans, prompting the current legal challenge.
The case continues to develop in the California Supreme Court as state officials and healthcare representatives dispute the implementation of the 2024 voter-approved limits.
Disclaimer: The information provided in this article is for educational and scientific communication purposes only and does not constitute medical advice. Always consult with a qualified healthcare provider regarding any medical condition, diagnosis, or treatment plan.