What Is Prop 35? The Permanent Managed Care Tax For Medi-Cal Funds

CALIFORNIA — Democrats and Republicans don’t seem to agree on much these days, particularly when it comes to taxes and health care. However, Proposition 35, which aims to establish a permanent tax on managed care health plans to fund health programs, is the rare proposition that has the support of the California Democratic Party, the Republican Party of California, and all the major state health organizations.

Although some organizations have spoken against it, several different sources could not identify any funds spent to defeat it. A recent poll from the Public Policy Institute of California shows that the measure has the support of 62% of respondents.

Since 2009, California has imposed a specific tax on Managed Care Organization Providers, which offer health insurance for a fixed monthly fee. Examples include Kaiser Permanente, Anthem Blue Cross Blue Shield of California, and L.A. Care Health Plan, which are all taxed based on how many clients they enroll.

The Managed Care Organization Provider Tax helps partially fund existing costs in Medi-Cal, the state’s Medicaid health insurance plan for low-income Californians, and increases Medi-Cal payments to doctors and other health providers. According to the Kaiser Family Foundation, California’s Medi-Cal reimbursement rate falls in the bottom third nationally, so many providers don’t treat Medi-Cal patients. A coalition of hospitals, doctors, and clinics gathered signatures for Prop. 35 in an attempt to increase payments.

Currently, the Managed Care Organization Provider Tax is not permanent, and the state legislature needs to vote to renew it every few years. It was most recently renewed in 2023, but it is set to expire in 2026.

Proposition 35 would attempt to make the existing tax permanent by requiring the California Department of Health Care Services to continually request federal approval for it. If the tax is consistently approved, the California Legislative Analyst’s Office estimates that it would generate between $7-8 billion annually.

Prop. 35 also sets rules about how that revenue is spent. For 2025-26, $2 billion would be used to offset General Fund spending in Medi-Cal. Starting in 2027, the state would no longer be able to use revenue to replace existing Medi-Cal spending. The funds would instead be allocated to support access to primary care and specialty care, particularly to increase reimbursement rates for primary care services and the number of specialty care providers. They would also be used for emergency services, family planning, mental health, prescription drugs, and more.

Prop. 35 also requires that any remaining tax revenue be put to specific use, and requires independent audits of how the funds are being spent.

Supporters include a wide array of political and health organizations, including the California Medical Association, Planned Parenthood Affiliates of California, the California Hospital Association, the California Dental Association, the California Primary Care Association, the California Democratic Party, and the California Republican Party, who have raised a combined $48.6 million in support of the measure.

Opponents include the League of Women Voters of California, California Pan-Ethnic Health Network, The Children’s Partnership, California Alliance for Retired Americans, and Courage California, but no money has been raised to combat it, according to different sources.

Supporters argue that the proposition will infuse much-needed investments into Medi-Cal by ensuring that a steady stream of revenue is directed toward patient care. Opponents argue that Prop. 35 is too restrictive on how the funding is used, and does not incorporate enough community input.