WASHINGTON – Today, Congressman David Valadao (CA-22) joined Reps. Vince Fong (CA-20), Jay Obernolte (CA-23), and members of the California delegation in sending a letter to Governor Gavin Newsom and California State Medicaid Director Tyler Sadwith expressing concerns about the state’s revised health care tax, which would raise healthcare costs for millions of Californians already struggling with the rising costs of healthcare.

“I’m deeply concerned by the Newsom Administration’s decision to dramatically increase taxes on health plans serving working families, employees, and employers across California,” said Congressman Valadao. “For years, the state has relied on Managed Care Organization (MCO) tax revenue to help offset broader budget obligations rather than directing those resources toward strengthening Medi-Cal and improving access to care. Now, instead of pursuing a budget solution that makes healthcare more affordable, Sacramento is ready to shift additional costs onto hardworking Californians to help balance the Newsom Administration’s reckless spending. I’m proud to join my California colleagues in demanding answers from Governor Newsom and pushing for a path forward that lowers costs for families rather than making healthcare more expensive.”

The letter comes in response to the recent passage of the State of California’s Fiscal Year 2026-2027 Budget, which restructures the Managed Care Organization (MCO) tax to shift additional costs onto commercial health plans and the enrollees they cover, rather than scaling the tax rate to the lower commercial rate or utilizing General Fund obligations.

“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,” the letter states. “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. This proposal would place an additional financial burden on working families, employees, and employers who rely on commercial health insurance.”

Federal law requires California to impose a uniform MCO tax on both commercial and Medi-Cal plans. However, taxes on Medi-Cal and Affordable Care Act (ACA) Marketplace plans are absorbed by the federal government, meaning individuals on commercial plans will bear the brunt of this change. Additionally, in November 2024, California voters approved Proposition 35, which required that all MCO tax revenue be used to strengthen healthcare and set a $2.50 per month limit on taxes for commercial plans to protect Californians from drastic premium increases like the ones proposed in the FY26-27 Budget.

“The California Legislative Analyst's Office has warned that commercial insurers will "likely recover at least some of this cost by increasing premiums on consumers, potentially increasing health care costs for working families by hundreds of dollars each year,” the letter continues.  

“Our constituents deserve transparency about how this policy will affect their pocketbooks and whether it honors the commitments made to voters at the ballot box. We look forward to your prompt response. We urge the state to pursue a budget solution that does not increase health care costs for Californians, who are already struggling with California’s high cost of living,” the letter concludes.

Congressman Vince Fong (CA-20)

Congressman Jay Obernolte (CA-23)

Congressman James Gallagher (CA-01)

Congressman Kevin Kiley (CA-03)

Congressman Tom McClintock (CA-05)

Congresswoman Young Kim (CA-40)

Congressman Ken Calvert (CA-41)

Congressman Darrell Issa (CA-48)

Read the full text of the letter here.

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