Newsom faces lawsuit claiming health insurance tax violates Prop 35

Key Points:

• California Governor Gavin Newsom and Democratic lawmakers support a revised health-plan tax to preserve Medi-Cal funding after federal restrictions, potentially raising costs for privately insured Californians starting in 2027.
• The tax increase has united doctors and health insurers in opposition, with lawsuits claiming it violates voter-approved limits under Proposition 35, which restricts how much the state can tax commercial health-plan enrollment.
• Critics warn the revised tax could raise insurance premiums by about $100 per person annually, potentially adding $400 for a family of four, as California continues to cover healthcare for undocumented immigrants, costing an estimated $12.4 billion in 2025.
• State officials argue the new tax structure complies with federal law and the One Big Beautiful Bill Act, submitting proposals to the federal government with different compliance tracks, while maintaining confidence courts will uphold the tax increase.
• California faces a significant population outflow attributed partly to high living costs, with nearly 10 million residents leaving for other states between 2010 and 2024, intensifying concerns about the financial burden on remaining Californians.