Proposition 35 explained: What California’s health tax ballot measure is asking you

California’s Proposition 35 is a battle over how state lawmakers can spend billions in health care dollars.

It would make permanent a tax on health insurance plans, a charge that also allows the state to draw down billions in federal funds by taxing Medi-Cal plans at a much higher rate than private insurance plans.The state levy is essentially a tax on the federal government.

It’s known as the Managed Care Organization Provider Tax, or MCO tax.

The state has imposed this tax on-and-off since 2009. Lawmakers most recently implemented it in 2023 to help fill a $30 billion deficit.

It currently brings an estimated $7 to $8 billion annually to the state via insurance and federal dollars. It is set to expire at the end of 2026.

Proponents of Prop. 35 want to make the MCO tax permanent, but they also want to make sure the money is spent directly on care for Medi-Cal patients.

Critics of the measure say the money would not equitably fund health services such as those not covered by Medi-Cal. They also warned against shoring up the state’s healthcare infrastructure with federal funding that may not always be available.

What a ‘yes’ vote means

A yes vote would make permanent a tax on health insurers, which is currently set to expire at the end of 2026.

If Prop. 35 passes, the tax would no longer require legislative approval. However, the state-imposed tax would still require federal approval every few years.

Voting yes on the measure would also require future MCO funds to be used directly on services for Medi-Cal patients.

What a ‘no’ vote means

Voting no would leave it up to state lawmakers to decide whether or not to renew the tax in 2026 and thereafter. It would also leave state leaders with more flexibility to use billions in healthcare funding, including for services in under-resourced communities.

Supporters of Prop. 35

Prop. 35 is backed by a large coalition of groups representing medical professionals including:

California Medical Association

California Dental Association

California Hospital Association

American Academy of Pediatrics, California

American College of Obstetricians and Gynecologists -District IX

International Association of EMTs and Paramedics

Planned Parenthood Affiliates of California

“Prop. 35 will address our most urgent healthcare priorities by securing dedicated, ongoing funding – without raising taxes on individuals — to protect and expand access to care,” several of the groups wrote in the official ballot argument in favor of the measure.

By requiring MCO tax dollars to be spent on Medi-Cal patients, the proposition all but ensures more funding for larger hospital systems, community clinics and specialists who serve those patients.

Supporters have raised just over $10 million for the ballot campaign as of early September, according to campaign finance records.

Opponents of Prop. 35

Those opposed to Proposition 35 include:

California Pan-Ethnic Health Network

League of Women Voters of California

The Children’s Partnership

California Alliance of Retired Americans

Courage California

Many of the groups say the measure could hurt investments in other services that are not Medi-Cal but still help lower-income residents, such as non-emergency medical transportation for people in rural areas.

They also say a budget provision that automatically keeps children up to five years old enrolled in Medi-Cal would end under Prop. 35.

State Sen. Caroline Menjivar, D-Van Nuys, advocated for smaller clinics to get a slice of the MCO pie in recent budget years, when deficits threatened to slash those services.

“By listening to those with boots on the ground, the legislature developed a plan to equitably address many Medi-Cal concerns over the next few years,”Menjivar said in a statement. “Prop. 35 excludes community priorities and only prioritizes larger providers, while taking away necessary flexibility in how Medi-Cal dollars are spent.”

While not formally opposed, Gov. Gavin Newsom also raised concerns about the measure, saying it would “hamstring” the state’s budgeting flexibility and would rely too heavily on dollars that could be denied by a future White House.

Opponents have not reported any spending or fundraising for a campaign against Prop. 35, according to the Secretary of State’s website.

Fiscal impacts of Prop. 35

Prop. 35 could bring in an additional $2 to $5 billion annually, according to a report by the nonpartisan Legislative Analyst’s Office.

But short-term, it could cost an additional $1 to $2 billion for Medi-Cal over the next two years, the LAO analysis said. Long-term fiscal impacts are unknown because they depend on whether the MCO tax would be renewed or approved in future years.

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