Senate Bill 125 may preserve Medi-Cal funding, but critics warn the cost could ultimately land on millions of Californians who already pay some of the nation’s highest insurance premiums.
Californians are constantly told that affordability is Sacramento’s top priority. Yet lawmakers have approved a proposal that could make health insurance more expensive for millions of working families.
The Legislature recently passed Senate Bill 125, a measure designed to preserve funding for Medi-Cal, California’s Medicaid program, after new federal regulations forced the state to redesign a major health care funding mechanism. Supporters say the bill is necessary to protect health care services for low-income residents. Critics warn it could increase premiums for Californians who receive coverage through employers or purchase insurance on their own.
Both concerns deserve attention.
At the center of the debate is California’s Managed Care Organization tax, commonly known as the MCO tax. For years, California taxed Medi-Cal health plans at higher rates than private plans and used the revenue to secure billions of dollars in federal matching funds.
New federal rules now prohibit states from taxing Medicaid plans more heavily than commercial plans. To comply, California must redesign the tax if it wants to continue receiving federal funding tied to Medi-Cal.
Under Senate Bill 125, both public and private health plans would pay the same monthly assessment of $8.85 per enrollee. While the measure does not directly raise insurance premiums, health plans have warned that higher taxes inevitably become part of the cost of coverage.
According to California’s Legislative Analyst’s Office, premiums could rise by approximately 1.5% if insurers pass the full cost to consumers.
The California Association of Health Plans estimates that could mean roughly $100 more per year for an individual and as much as $400 annually for a family of four.
To Sacramento, those numbers may appear manageable.
To families already struggling with housing costs, utility bills, grocery prices, gasoline expenses, and childcare, they are not.
California’s affordability crisis is no longer limited to housing. Residents face increasing costs in nearly every aspect of daily life. Utility rates continue to rise. Automobile insurance has become more expensive. Small businesses face mounting expenses. Adding health care costs to that list moves California further away from the affordability goals state leaders frequently promote.
Even some lawmakers expressed concern.
State Sen. Akilah Weber Pierson, a physician and Democrat from San Diego, described the proposal as “extremely problematic” and questioned the burden it could place on working families. Health care organizations, physician groups, hospitals, and insurance plans have also voiced opposition, warning that higher premiums could make coverage less affordable and potentially drive more people out of the private insurance market.
Supporters argue there were few alternatives. They contend the state must preserve funding for Medi-Cal and continue supporting health care services for millions of Californians.
That is a legitimate objective.
But Californians deserve honesty about the tradeoffs. If insurers pass these costs to consumers — as industry leaders, physicians and health plans predict they will — then working families will ultimately pay more for coverage.
The increase may never appear as a line-item tax. It will likely arrive in the form of higher monthly premiums and annual rate increases. That is why critics describe it as a hidden tax.
Most Californians support maintaining a strong health care safety net. They understand the importance of Medi-Cal and the role it plays in protecting vulnerable residents.
But good intentions do not eliminate economic reality.
When government increases costs on private health plans, those costs do not simply disappear. They are passed on to employers, workers, retirees, and families already struggling with California’s high cost of living.
Sacramento may call Senate Bill 125 a health care funding solution.
Californians may soon know it by another name: a hidden health insurance tax that made coverage even less affordable.
Mihran Kalaydjian
Santa Clarita
