Add The California Post on Google California Democrats pushed a controversial new healthcare tax through the legislature without a single Republican vote. Gov. Gavin Newsom included it in the 2026-27 budget package — the last of his governorship.
Before Newsom’s new healthcare tax can take effect, it must be approved by the Trump administration. President Donald Trump can stop it.
Why? Because the tax is designed to trigger more federal Medicaid dollars being spent on the state, it needs sign-off from the Centers for Medicare & Medicaid Services, now headed by Dr. Mehmet Oz.
That makes this far more than a Sacramento budget fight. It is a test of whether Washington will allow Newsom to shift more healthcare costs onto privately insured families to salvage a financing maneuver that keeps federal Medicaid dollars flowing to a financially strained Medi-Cal program.
The provision is contained in SB 125, a budget trailer bill Newsom signed. It imposes a flat $8.85-per-member, per-month tax on commercial health plans, Medi-Cal managed care plans and Obamacare marketplace plans.
Consider what that replaces. California had been taxing Medi-Cal plans roughly $274 per member per month — and private plans just $2.25. That 122-to-1 gap was no accident. It was the engine of the scheme.
This year, Washington banned it: States must now tax all health plans equally. So Newsom cut the tax on Medi-Cal plans, and raised it on the private insurance working families carry. His administration calls that simple compliance.
Republican Assemblyman Carl DeMaio of San Diego called the proposal “a wolf in sheep’s clothing,” warning that it could saddle California families with roughly $425 a year in higher healthcare costs. Whether the final figure lands there or not, common sense says health plans are unlikely to absorb a new tax without passing at least some of the cost along to employers, workers and families.
The roots of this fight go back to Proposition 35.
California voters approved the ballot measure in 2024 after supporters argued the Managed Care Organization (MCO) tax would strengthen Medi-Cal and improve access to care. I opposed it because the MCO tax was never simply about improving healthcare. It was a financing mechanism designed to pull billions of additional federal Medicaid dollars into California.
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California taxes its health plans with one hand and pays the money right back to them with the other. Nobody in Sacramento loses a dime. But every dollar that makes the round trip triggers matching funds from Washington. The whole point is to make the federal government pick up a bigger share of California’s Medi-Cal bill.
Washington concluded that states were gaming provider taxes to maximize federal Medicaid dollars and shut it down. Rather than controlling Medi-Cal spending or reforming the program, Newsom came back with a redesigned tax that spreads the burden to commercial health plans — salvaging the gimmick even as it raises billions less than before.
Newsom and legislative Democrats dramatically expanded Medi-Cal, including full-scope benefits for illegal immigrants. Those costs came in far higher than Sacramento projected, forcing state officials to scramble for financing.
Instead of admitting that California expanded government healthcare faster than it could honestly pay for it, Newsom’s answer is a new tax structure that critics say will ultimately increase the cost of private health insurance.
Californians shouldn’t be surprised. When Sacramento expands government programs beyond what taxpayers can sustainably finance, someone eventually gets the bill.
The Wall Street Journal aptly described the proposal as “Newsom’s health tax gambit.”
Instead of confronting the structural problems driving Medi-Cal’s exploding costs, Newsom is asking the Trump administration to approve a financing scheme that could raise premiums on privately insured Californians while helping stabilize his budget.
Supporters of Proposition 35 told voters the MCO tax would strengthen healthcare services and improve patient access — not become a tool to relieve pressure on Sacramento’s budget. Yet less than two years later, Newsom is asking Washington to approve a redesigned version because the original financing model no longer works under revised federal rules.
This isn’t just an obscure healthcare regulation buried in the budget.
It’s a reminder that Sacramento has grown dependent on complicated financing schemes instead of confronting the soaring cost of Medi-Cal itself. Rather than reducing spending, Newsom’s answer is another tax that will invariably show up in the monthly premiums paid by working Californians.
Fortunately, Sacramento doesn’t get the last word.
The Trump administration would do well to reject this scheme.
Jon Fleischman, a longtime strategist in California politics, writes at SoDoesItMatter.com.
