What Is Actually Happening With California's Health Plan Tax

Congressman Vince Fong recently said this about the health plan tax in California’s new state budget:

“Gavin Newsom is attempting to raise taxes on Californians with a massive health care tax to bail out his fiscal irresponsibility and cover Sacramento’s structural deficits. His unchecked Medi-Cal expansions have made the program fiscally unsustainable, forcing the state to borrow billions just to pay the bills. Voters passed Proposition 35 to stop Sacramento from raiding these revenues as a budget gimmick. CMS should not allow this.”

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Vince Fong For Congress, Facebook, August 4, 2026, posted with a California Politics 360 interview segment.

Parts of that are true. Parts of it are not. And the part he leaves out is the part that explains everything else.

This is complicated, so I am going to walk us through it. Every fact here comes from a government document or the nonpartisan Legislative Analyst’s Office, and I have linked all of them so you can check my work.

First, what this tax actually is

It is not a normal tax. It is a financing mechanism, and it works in a circle.

California charges health plans a set amount for each person they cover. That money goes into a state fund. The state uses it as California’s share of Medi-Cal spending. The federal government then matches what California spends. The state pays the plans back through their Medi-Cal rates.

The plans come out roughly even. California ends up with billions in federal dollars it would not otherwise get.

Here is the key point, from the Legislative Analyst’s Office: over 99 percent of the money this tax raises comes from additional federal funding, because most of the tax fell on Medi-Cal enrollment and Medi-Cal essentially covers the cost of the tax for the plans.

That only works if the tax is weighted toward Medi-Cal. A dollar charged on a Medi-Cal enrollee circles back and draws a federal match. A dollar charged on someone with private insurance does not. It is a straight cost to the plan, and it shows up in premiums.

So California built the tax with a very lopsided structure. By 2024 it charged $205 a month per Medi-Cal enrollee and $1.75 a month per commercially insured enrollee. That structure brought in roughly $7 billion to $8 billion a year for Medi-Cal.

What voters approved in 2024

Proposition 35 passed with just under 68 percent of the vote. Both the California Democratic Party and the California Republican Party endorsed it. No one filed an argument against it.

Prop 35 did four things that matter here.

1. It made the tax permanent.

2. It required the money to go to Medi-Cal improvements, particularly higher payment rates for doctors, hospitals, clinics, and ambulance providers.

3. It said the money could not replace existing Medi-Cal funding.

4. It protected people with private insurance by capping the charge on commercial coverage at $2.50 per person per month, with a hard ceiling of $36 million a year from commercial plans.

That cap was the whole promise to people with employer coverage. Your premiums stay out of this.

What Congress did in 2025

H.R. 1 passed the House on July 3, 2025 and was signed the next day. Congressman Fong voted for it and issued a press release calling it landmark legislation that delivers for the Central Valley.

Buried in that bill is a change to how states can structure these health plan taxes. In the Legislative Analyst’s words: future taxes must now be proportionate between Medi-Cal and private health plan enrollment, effectively shifting more cost burden onto private plans.

In plain English, Congress said states can no longer charge Medi-Cal plans more than commercial plans. The federal agency that runs Medicaid wrote the rule implementing it, published February 2, 2026, and gave California until January 1, 2027 to comply.

This is the part he left out

Put the two laws side by side.

Proposition 35 says the commercial rate cannot go above $2.50.

H.R. 1 says the Medi-Cal rate cannot go above the commercial rate.

Therefore the Medi-Cal rate cannot go above $2.50 either.

The Legislative Analyst ran the numbers and reported the result: because of the interaction of these two laws, the 2027 version of the tax was expected to be very small, raising just tens of millions of dollars annually.

That is the choice California was handed. Roughly $7.5 billion a year for Medi-Cal, down to almost nothing. Not because of anything Sacramento did in 2026, but because a federal law passed in 2025 collided with a consumer protection voters approved in 2024.

What the Legislature did

Senate Bill 125, signed June 29, 2026, creates a second, separate health plan tax that charges the same flat amount, $8.85 per person per month, to everyone, whether they are on Medi-Cal, on a commercial plan, or on a Covered California plan. It runs for 2027, 2028, and 2029 only.

The Legislature’s argument is that Proposition 35’s rules govern the tax Proposition 35 created, and this is a different tax under a different section of law. Prop 35’s tax stays on the books, untouched, and the state is still required to submit it for federal approval.

The nonpartisan Legislative Analyst reviewed that theory and concluded: “based on our initial review of the Proposition 35 text, we could identify a reasonable argument for the Governor’s proposed approach. That said, there is no guarantee that the courts would concur with our understanding.”

That is where things stand. Not clearly legal, not clearly illegal, and untested.

Where the congressman is right

I am not going to tell you your premiums will not go up. They most likely will.

The Legislative Analyst estimates that if plans pass the entire tax through, the increase is roughly 1.5 percent. In California, where the average employer family premium is $28,397 a year and single coverage averages $10,033, $8.85 per person per month works out to about $106 a year for one person and about $425 a year for a family of four.

One thing worth knowing about who pays. This tax reaches plans regulated by the state’s Department of Managed Health Care. Large employers that self-insure are outside it. In practice the cost falls hardest on people who buy their own coverage and people who work for smaller businesses. In Kern, Kings, Tulare, and Fresno counties, that is a lot of us.

He is also right that this new tax was designed to relieve the state General Fund. SB 125 says so on its face. After paying the plans back and funding the provider rate increases, the law directs at least $2 billion a year toward covering existing Medi-Cal costs the General Fund would otherwise pay. That is the stated purpose, not an accident.

And there is a fair argument that using a separate statute to get around a limit voters approved is not the way this should have been handled. Proposition 35 allows the Legislature to amend it directly with a three-quarters vote in each house. The Legislature did not use that route.

Where he is wrong

On what caused this. He calls it “Newsom raising taxes.” The shift onto commercial premiums is required by H.R. 1, the federal law he voted for and celebrated. Sacramento did not invent that requirement. Congress wrote it.

On what is driving Medi-Cal costs. He says unchecked expansions have made the program unsustainable. The nonpartisan Legislative Analyst found that per-enrollee costs, rather than caseload, have explained most of Medi-Cal’s spending growth over the past decade. Enrollment is going down, from about 15 million in 2024-25 to 14.4 million in 2025-26 to a projected 13.9 million in 2026-27. Meanwhile pharmacy spending per beneficiary is projected to grow by more than 15 percent in a single year. If we want to talk about what is making health care unaffordable in the Central Valley, prescription drug prices belong at the top of the list.

On the money being diverted from care. SB 125 funds the Medi-Cal payment rates for primary care, obstetric care, doula services, and outpatient mental health that Proposition 35 was passed to protect. Those payments are written into the law as a funding priority. The rate increases survive. That matters for every clinic and every delivery room in this district.

On asking CMS to block it. This one deserves a close look.

What “CMS should not allow this” would actually mean

The old tax needed federal permission because it was lopsided. Federal law requires these taxes to be uniform, and California’s was not, so it needed a waiver.

The new tax charges everyone the same $8.85. If it is genuinely uniform, no waiver is required. SB 125 reflects this: it lets the state collect the tax either after the federal agency approves it, or after California’s Medicaid director certifies that it already meets federal requirements. Either one.

So the congressman may be asking a federal agency to block something that agency has no authority to block.

Let’s set the legal question aside and ask the practical one. If CMS did say no, what happens?

The money does not come back to Central Valley families as lower premiums. It disappears from Medi-Cal. Rural hospitals, community clinics, nursing homes, ambulance providers, and long-term care facilities across Kern, Kings, Tulare, and Fresno counties absorb the loss. In a district where Medi-Cal covers a large share of our neighbors, that is not an abstraction.

I would also point out that in February of this year, the congressman publicly thanked the CMS administrator for giving California more time to comply with this same rule, saying it would help hospitals and health care providers throughout the Central Valley. Five months later he asked the same agency to shut the door.

Our hospitals deserve to know which position he actually holds.

Where I stand

I have spent more than thirty years in health care, most of it as a respiratory therapist, and I have spent the last several years fighting for people with disabilities to get the services they are legally entitled to. I have sat with families while an insurance company decided whether their loved one receives testing or treatment. I know what happens when the denial arrives.

So here is my position:

I do not like this tax. It puts a cost on working families with employer coverage, and it does it to plug a hole in the state budget. That is a legitimate thing to be unhappy about, and I am unhappy about it.

The congressman is asking you to believe he had nothing to do with this. He voted for the federal law that forced it. He issued a press release praising that law. He is not hiding his aye vote. He is simply leaving his vote out of the explanation. H.R. 1 forced this. That is not my characterization. It is what the nonpartisan Legislative Analyst reported.

I would not ask a federal agency to take billions of dollars out of Medi-Cal in this district and call that a win for affordability.

If the congressman thinks there is a better structure, he should name it. What health plan tax would he approve, at what level, and if the answer is none, what replaces the money? He has not answered that. I think the people in this district deserve an answer.

Every source in this document is linked. If you want to check any of it, please do. If you find I have something wrong, tell me and I will correct it publicly. Paid for by Sandra Van Scotter for Congress

Thanks for reading Sandra Van Scotter For Congress. Advocate for the People! Subscribe for free to receive new posts and support my work.