The Question

Should California make permanent an existing tax on managed health care plans to provide ongoing funding for Medi-Cal and other health care services?

The Situation 

California currently imposes a tax on health care plans. The tax is not permanent and needs to be approved every few years by the California Legislature and the federal government. It was last approved in 2023 and will expire at the end of 2026 unless it’s approved again. When matched with federal funds, this tax generates revenue that helps pay for health care services for low-income families, seniors, disabled persons, and other Medi-Cal recipients. Medi-Cal is California’s Medicaid program, providing health coverage to eligible low-income residents.

The way this tax works has changed over time, but right now, health plans are taxed based on the number of people they cover, including those in Medi-Cal. Some of the tax revenue helps pay for existing Medi-Cal costs, which reduces the amount of money the state has to spend from its General Fund. Some of it is used to increase funding for Medi-Cal and other health programs. For example, the state is using this money to raise payments to doctors and other health care providers in Medi-Cal.

The Proposal

Proposition 35 would make the existing tax on managed health care plans permanent. The revenue generated would fund Medi-Cal services and other specified healthcare programs. Key provisions include:

• Making the existing tax on managed health care plans permanent, subject to federal approval.
• Requiring that revenues be used only for specified Medi-Cal services, in ways different from the current distribution of funds. These services include primary and specialty care, emergency care, family planning, mental health, and prescription drugs.
• Prohibiting the use of these revenues to replace existing Medi-Cal funding.
• Capping administrative expenses and requiring independent audits of programs.

Fiscal Effects

According to the Legislative Analyst’s estimate:

• In the short term (the next few years) there will be no changes
• Beginning in 2027:
  • Increased funding for Medi-Cal and other health programs between roughly $2 billion and $5 billion annually (including federal matching funds).
  • Increased state costs between roughly $1 billion to $2 billion annually to implement funding increases.
• In the long term:
  • Unknown effect on state tax revenue, health program funding, and state costs.
  • Fiscal effects depend on many factors, such as whether the Legislature would continue to approve the tax on health plans in the future if Proposition 35 is not passed by voters.

Supporters Say

• Protects and expands access to health care for millions of Californians, including children, low-income families, seniors, and people with disabilities.
• Provides dedicated, ongoing funding for critical health care services without raising taxes on individuals.
• Improves access to primary care, specialty care, emergency services, and mental health treatment.
• Includes strong accountability measures to ensure funds are spent as intended.

Opponents Say

No arguments against Proposition 35 were submitted

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