Some doctors and insurance companies say California’s new health care tax, expected to add hundreds of dollars to family premiums each year, is not even legal.
The California Medical Association and the California Association of Health Plans, which represent doctors and insurers respectively, have accused state officials of violating Proposition 35, which passed in 2024 with 68% voter approval and placed certain limits on health care taxes.
The health care tax — known as the managed care organization tax, or MCO tax — was passed by the California Legislature in June and signed into law by Gov. Gavin Newsom.
Insurers estimate the tax would increase monthly premiums by $8.85 per insured person, $100 per year for an individual and $400 per year for a family of four. California officials claim the new tax is needed to make up for a revenue shortfall caused by President Donald Trump’s cuts to federal funding.
“California should not address its budget shortfall by significantly increasing taxes on the cost of health care for working families,” Charles Bacchi, president and CEO of the California Association of Health Plans, said in a statement.
California Medical Association CEO Dustin Corcoran added: “This lawsuit touches on a simple principle: States must follow the law.”
The tax on health insurance companies is one of two new taxes approved by California lawmakers in June, with the California Taxpayers Association calling it “the largest tax increase in state history.”
Another is a new sales tax on software downloads, which would apply to common programs like Slack, Abobe or TurboTax.
The taxes were negotiated as part of Newsom’s record-breaking $350 billion state budget, as Democrats try to fill a revenue gap they blame on funding cuts by Trump and congressional Republicans.
The lawsuit asks the court to invalidate the health care tax and require California to comply with funding requirements set out in Proposition 35.
CNN reached out to Newsom’s office for comment.