NEWYou can now listen to Fox News articles!
As California grapples with skyrocketing medical costs — including billions spent on health care for immigrants without legal status — Gov. Gavin Newsom and Democratic lawmakers have backed a revised tax on health plans in response to new federal restrictions, a move that critics say could shift more costs to privately insured Californians.
The tax has united an unlikely coalition of doctors and health insurers against it, with critics warning it could make California even more expensive.
To preserve billions in medical funding after Washington tightened rules governing taxes on health plans used to attract federal matching funds, Newsom supported a revamped tax that would increase the levy on private health plans starting in 2027 if approved by the federal government, potentially raising premiums for their customers. Providing health care to illegal immigrants cost California an estimated $12.4 billion in 2025, the Associated Press reported.
Asked whether expanding coverage to illegal immigrants created a need for California to raise taxes, Brian Blase, president of the center-right Paragon Health Institute, responded with an emphatic “yes.”
DR. OZ UNVEILS MEDICAID OVERVIEW, Crackdowns on $2 Billion for Illegal Immigrants and Work Mandates for Able-Bold People
Governor Gavin Newsom speaks March 26, 2025 in Los Angeles. (Frazer Harrison/WireImage)
“The One Big Beautiful Bill Act limited California’s ability to target the tax only at Medicaid insurers, which is why California is proposing to increase the health insurance tax on people with private coverage…estimates indicate it would increase insurance for families by $400 per year,” he told Fox News Digital. “It’s simply because California doesn’t want to keep up with its unsustainable spending…there are a lot of people enrolled in the program who are not eligible for the program, and that doesn’t even take into account the fact that California expanded Medicaid to all illegal immigrants in the state.”
California’s attempt to shore up Medi-Cal’s bottom line follows federal changes that will prevent the state from continuing its existing health plan tax structure after 2026, forcing an overhaul of a financing mechanism that has generated billions of dollars for the program.
The California Medical Association and the California Association of Health Plans are suing to block the tax increase, not on the grounds that it benefits illegal immigrants, but because of allegations that the measure violates voter-approved limits on taxes on health plans and restrictions on how the resulting revenue can be spent. The duo joining together to challenge the tax is notable because doctors and insurance companies often find themselves on opposing sides in health care debates.
Proposition 35, the initiative in question, limits the extent to which California can tax commercial health plan enrollment, limiting the state’s options as it tries to comply with new federal rules governing the much higher tax previously imposed on Medi-Cal enrollment. The proposal passed with overwhelming support from California voters.
NEWSOM URGES CALIFORNIANS TO VOTE “NO” TO BILLIONAIRE TAX IN FACE OF MASS EXODUS, LAUNCHES NATIONWIDE TAX RISE
The flag of the US state of California is seen in this illustration created on August 21, 2024. (Reuters)
“California voters passed Proposition 35 and made it law. The state cannot ignore this law simply because complying with it is not practical,” Dustin Corcoran, CEO of the California Medical Association, said in a statement.
Health insurers warn that the cost of the revised tax could be passed directly to consumers through higher premiums, estimating an increase of about $100 per person per year. A family of four, for example, might have to pay $400 more per year on top of normal rate increases.
Newsom spokeswoman Tara Gallegos said the governor maintains his tax increase is not made illegal by the proposal.
“The state does not agree with their assertions, and we believe the courts will as well,” she told Fox News Digital of the lawsuit.
HD Palmer, deputy director for external affairs at the California Department of Finance, told Fox News Digital that the new tax measure was designed to comply with the One Big Beautiful Bill Act. According to Palmer, the state’s current health tax regime could conflict with the bill and the state would submit a proposal with two tracks: one that is similar to the current tax regime but could run afoul of federal law and another that complies with the One Big Beautiful Bill Act by shifting costs to private plans.
CALIFORNIANS FLEETING TO RED STATES DRIVES HOME PRICES AND RENTS IN THEIR NEW CITIES, DATA SHOWS
California Governor Gavin Newsom answers questions from the media. (Reuters/Fred Greaves)
“If the federal government refuses to approve the tax structured similarly to the existing one (health plan tax), then Proposition 35 could be defunct under current law,” he added.
California has faced a mass exodus of people and businesses over the past decade, with the cost of living one of the top reasons individuals give for leaving the Golden State. One analysis found that nearly 10 million people left California for other states between 2010 and 2024, while just over 7 million moved to California from other states across the country during the same period.
CLICK HERE TO DOWNLOAD THE FOX NEWS APP
The state’s exodus has raised concerns about its financial outlook, with the departure of higher-income residents potentially reducing tax revenue in a state heavily dependent on the income tax.
Gn usa
