Republicans are pressing Health and Human Services Secretary Robert F. Kennedy Jr. to block California from implementing a new tax on private health insurers, warning it will worsen the state’s affordability crisis.
At issue is the recently restructured Managed Care Organization tax, which Democratic leaders and Gov. Gavin Newsom (R-CA) approved in June. California Republicans in the House have raised fears that it will increase premiums by up to $400 for residents and accused Newsom of violating the voter-approved Proposition 35, which limits how much the state can tax private health plans.
Six lawmakers, including Rep. Kevin Kiley (I-CA), an independent who caucuses with Republicans, and Rep. James Gallagher (R-CA), sent Kennedy a letter urging him to withhold federal approval for the new tax. They also included Dr. Mehmet Oz, the Centers for Medicare and Medicaid Services administrator, who works under Kennedy, on the letter.
“Californians are already shouldered with the highest cost of living in the United States,” they wrote. “This proposal will only make things worse.”
The development comes after Newsom signed a measure into law that restructured the MCO tax. Historically, Medi-Cal, California’s version of Medicaid, has been taxed more. The new law means the tax rate must be equal for private and public insurers, at an average monthly rate of $8.85 per enrollee. The changes have sparked concerns from Republicans that costs will be passed on to policyholders through increased premiums, as a family of four could pay an additional $400 annually in health insurance premiums.
The changes must be approved by the Centers for Medicare and Medicaid Services before taking effect next year, leading Gallagher and other Republicans to send the latest petition to Kennedy and Oz.
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Democratic lawmakers argue the tax is needed because of unstable state revenue and have blamed the Trump administration for the changes impacting private insurers. CMS passed a new rule this year that bars states from certain non-uniform MCO provider taxes; states that don’t comply risk losing federal Medicaid funding.
“We cannot live just day to day on stock market gains by the AI companies. We have to have a stable tax system in this state,” Democratic state Sen. Christopher Cabaldon said during a June 18 budget debate on the matter.