Doctors, insurers sue Newsom over health insurance premium increases
[October 06, 2026]
By KRISTEN HWANG/CalMatters
Doctors and health insurers filed a lawsuit Friday alleging Gov. Gavin
Newsom and the Legislature violated the law when they approved a
healthcare tax that could substantially increase insurance premiums for
Californians.
The lawsuit claims the recently passed tax on health plans, known as the
managed care organization tax or MCO tax, circumvents a 2024 initiative
that limits healthcare taxes and directs revenue toward specific
purposes. The California Medical Association and California Association
of Health Plans filed the complaint with the California Supreme Court.
“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.
Tara Gallegos, a spokesperson for Newsom, said 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.
H.D. Palmer, a spokesperson for the Department of Finance, said in a
previous statement to CalMatters that the state wanted to balance the
affordability concerns of privately insured patients against large-scale
federal Medi-Cal cuts.
Newsom stopped short of opposing the 2024 initiative when it was on the
ballot, but he warned at the time it would “hamstring” the state budget.
For more than 20 years, California has levied taxes on health insurers
to help fund Medi-Cal, the state’s insurance program for low-income
people. The state historically taxed private health plans at a lower
rate than Medi-Cal insurers, but in June, the Legislature passed a bill
substantially raising the tax on private plans.
[to top of second column]
|
 Health insurers said they will pass
the cost directly on to consumers, spiking premiums by about $100
per person each year. That means a family of four could pay a $400
annual increase. That would come on top of the rate increases people
typically see year to year.
“California is breaking the law by blowing through
a tax limit voters put in place to protect Californians and
businesses from higher health care costs,” said Charles Bacchi, CEO
of the health plans association.
Doctors, hospitals, clinics and Medi-Cal insurers have argued for
many years that the revenue from the tax should go toward improving
Medi-Cal. They said that the state was inappropriately using the
money to replace general fund spending, and that many providers were
being paid far less than their services cost. In 2024, they asked
voters to approve a limited tax that would be reserved for Medi-Cal
improvements.
But Congress last year changed the rules on taxes used to generate
revenue for healthcare, including the ones imposed on health plans.
Rather than lose the money generated by the tax, Newsom proposed and
the Legislature agreed to submit two taxes to the federal government
for approval: one that complied with the 2024 initiative but would
be rejected by the feds, and one that complied with federal
regulations and largely disregarded the initiative.
All contents © copyright 2026 Associated Press. All rights reserved
 |
