California Lawmakers Pass Bill to Protect Medicaid Funding
On Thursday, California legislators approved a bill aimed at securing federal funding for the state’s Medicaid program. The move comes amid worries that this proposal might lead to a significant increase in private health insurance premiums.
This bill responds to a recent federal directive mandating California to revamp its managed care organization (MCO) taxes collected from health plans. Senate Bill 125, as reported by CalMatters, suggests a reduction in taxes for Medi-Cal plans while increasing those for private plans to match. If Governor Gavin Newsom signs the bill, and it receives federal approval, it could mean that Californians with private insurance will likely face higher costs overall.
Newsom is expected to finalize the bill by month’s end, according to KCRA. The new legislation stipulates that an MCO provider tax will apply to health plans during the years 2027 to 2029, but collection of this tax won’t begin until it’s verified as federally permissible.
The MCO tax has historically been an essential revenue source for Medi-Cal, aiding in healthcare access for millions. Federal law permits states to impose taxes on MCOs to cover their Medicaid costs, according to the California Budget Policy Center.
In response to these changes, officials from the Department of Health Services, and Newsom’s office, referred inquiries to the California Department of Treasury. A spokesperson noted that the “MCO tax” has been crucial for the Medi-Cal program for over two decades. They added that the federal government is compelling states to raise taxes on commercial health plans to maintain this funding.
They highlighted that failure to adopt this proposal could threaten hundreds of millions in federal funding and lead to a more than $2 billion structural deficit, possibly requiring cuts to key state programs.
The California Medical Association expressed concerns that the budget for 2026-2027, along with the associated healthcare bill, could lead to a $1.5 billion tax increase, which would reflect in higher premiums for consumers—potentially up to $400 annually for a family of four.
CMA President René Bravo stated that many families struggle with medical expenses, often eliminating insurance to prioritize other needs. Similarly, the California Health Plan Association warned that the proposal could significantly raise premiums for families and small businesses.
Critics of the bill have voiced disappointment, arguing that imposing such a tax hike during challenging economic times shifts the burden onto families and workers, making healthcare less affordable rather than more accessible.
Additionally, the state recently halted new registrations for undocumented immigrants seeking full coverage after facing criticism about taxpayer burden, although current enrollees will retain their coverage with proper annual renewals.
Furthermore, there are ongoing discussions in the Legislature aimed at restoring Medi-Cal coverage for all income-eligible Californians, including undocumented immigrants, as noted by various announcements earlier this year.
