Newsom wants to increase an obscure tax for millions. He needs Trump’s help | Opinion
For millions of Californians with private health insurance, Gov. Gavin Newsom and the Democrats in the California Legislature have just increased a tax you have likely never heard of, but which could cost you hundreds next year.
Here is the politically delicious kicker to Sacramento’s scheme: President Donald Trump can veto it. And already California’s leading Republicans are calling on him to do just that.
At play here is a tried-and-true way for Sacramento to squeeze more money out of Washington. If California happens to tax its managed care organizations (MCOs) more, we can generally get more money out of the federal government to help pay for low-income Californians who need care through the state’s Medi-Cal program.
Would-be presidential candidate Newsom likes to claim that California overall isn’t a high-tax state, just that we tax the rich more. But no governor in the land can touch Newsom when it comes to taxing managed care organizations. California, by numerous measures, is the king of health care taxation.
Traditionally, this tax has been largely confined to health plans covering the Medi-Cal population. With this care at little to no cost to the enrollees, they have basically not paid this tax; it just increases the overall cost of the program. And with the federal matching funds, this tax system can generate in the range of $20 billion a year.
How much money is that? As a comparison, the entire 23-campus California State University system gets about $5.5 billion in core state support.
This health tax has also helped Democrats balance state budgets in lean years as it relieves pressure on the general fund to cover Medi-Cal costs. This tactic upset the doctors, hospitals and clinics throughout California who were counting on full state funding of the Medi-Cal program.
The wonkiest among you may remember voting on Proposition 35 on the November 2024 ballot. This measure made this MCO tax on Medi-Cal plans permanent and directed this money to the providers. It passed overwhelmingly, with 68% support, whether we truly understood this measure or not.
Newsom and the Democrats’ decision to expand this tax to private insurance plans throughout California is a game changer in this financing tool. Health insurers paying this tax will have every incentive to raise premiums.
About half of Californians have employment-based private insurance plans. Sacramento basically just raised their taxes. And Republicans smell blood in the political waters.
In a letter signed by 14 members of the Legislature, the Republicans are calling on Health and Human Services Secretary Robert F. Kennedy to deny federal approval of the MCO tax increase.
“At a time when California families’ healthcare costs are already rising at an unsustainable rate, this proposal would add another $425 in costs per year for the typical family,” the letter says. “This proposal will further increase the financial burden on those who purchase private coverage.”
This is all part of a broader and ongoing battle between the two parties. The Republicans are looking to decrease future spending on Medi-Cal programs nationally to fund tax breaks that go disproportionately to the wealthy, thanks to Trump’s so-called 2025 Big Beautiful Bill. The Democrats are searching for new revenue to keep current coverage and program levels afloat.
Both sides, of course, are outraged at the other. Yet California has placed itself in a uniquely vulnerable position by assuming the Trump administration, Newsom’s favorite political punching bag, will go along with this tax increase.
Don’t count on it. Given that American-style health care is the most expensive on the planet and California faces a chronic affordability crisis, it’s curious that Newsom and the Democrats in Sacramento think the solution is to tax this system even more.
This MCO tax lived in the political shadows for years. Newsom may have just made it a household name.
This story was originally published July 13, 2026 at 5:00 AM with the headline "Newsom wants to increase an obscure tax for millions. He needs Trump’s help | Opinion."