SCOOP: Gov. Gavin Newsom’s plan to hit California families with health care hikes causes affordability hurdles

As politicians of both parties home in on affordability as one of the defining issues of the 2026 midterm elections, Californians could be in for an unpleasant surprise due to California’s recently-passed budget under Gov. Gavin Newsom (D., Calif.). 

Tucked inside California’s $355 billion budget is a Managed Care Organization (MCO) tax, which health care experts note could raise premiums by up to $425 a year for a family of four. The MCO tax is a levied on the health plans that administer Medi-Cal, which is the state’s Medicaid program.

Under the current system, California taxes the health plans, spends that money on Medi-Cal, and then draws a federal match against this spending, giving the Golden State billions of federal dollars that it would otherwise not receive. The status quo is locked into statute by Proposition 35, which provides around $8 billion to the state every year — however it is set to expire at the end of 2026.

California’s Republican congressional delegation — Reps. Darrell Issa (R., Calif.), Vince Fong (R., Calif.), David Valadao (R., Calif.), James Gallagher (R., Calif.), Kevin Kiley (I., Calif.), Tom McClintock (R., Calif.), Young Kim (R., Calif.), and Ken Calvert (R., Calif.) — wrote to Newsom and to California State Medicaid Director Tyler Sadwith expressing its concern about how “the proposal would place an additional financial burden on working families, employees, and employers who rely on commercial health insurance.”

“Before the implementation of H.R. 1, California’s MCO tax rates were set at $274 per member, per month for Medicaid, while commercial member months were taxed at $1.75 per member, per month,” they wrote. “The current California tax proposal would impose a per-enrollee tax of $8.85 per month on commercial health plans, Medicaid plans, and Affordable Care Act (ACA) Marketplace plans.”

Unfortunately for Newsom, the GOP’s signature bill of 2025, the Working Families Tax Cuts, imposed a series of restrictions that Proposition 35’s structure can’t satisfy. Consequently, the size of a future MCO tax is significantly reduced, which leads to a cut in Medi-Cal’s funding. This will likely shift that burden onto Californians with private health insurance, leading to the hundreds of dollars of increased costs for California families. 

Charles Bacchi, the CEO of the California Association of Health Plans, explained that the MCO tax gets passed “straight through to the consumer.”

“We should come up with a number, it’s going to be modest, it’s not going to help the budget, but we should come up with a number that’s acceptable to the plans,” Bacchi said.

For Newsom, the issue could pose a problem for a potential presidential bid of his own, which he recently acknowledged he is seriously considering. Even some Democrats in the California legislature are signaling opposition to this plan; in the governor’s final budget while helming the state, he could have to fight with members of his own party. 

“I am very uncomfortable with this proposal and the economic burden it will have on the families I serve as a senator but also a physician,” Democratic state senator Akilah Weber Pierson said of Newsom’s move.

As Newsom prepares to leave office and to potentially run for president, the optics of raising health care costs on California families as he heads out the door is likely fodder for Republicans to use against him, should he win the Democratic Party’s nomination.