Newsom's Medicaid Tax Maneuver Forces Californians to Choose Between Higher Premiums and a Budget Hole Because of Weak Leadership
Source: Christopher Jacobs. "Newsom's Dirty Medicaid Trick Screws Over Californians." November 5, 2026. thefederalist.com
The Gist
The author says California is stuck between raising health insurance costs and blowing a hole in its budget because Newsom didn't speak out against a flawed ballot measure and is now trying to sidestep it with a legal maneuver. He argues this shows poor leadership that shouldn't be taken to Washington.
Conclusion
Newsom's failure to lead on Proposition 35 and his maneuver around it have left Californians facing either higher health insurance premiums or another state budget shortfall, and this shows he lacks the leadership he would bring to Washington.
Premises
- California funds Medicaid through a tax on managed care organizations that taxes Medicaid enrollees ($274 per month) far more heavily than non-Medicaid enrollees ($2.25 per month) in order to maximize federal matching funds.
- Federal officials under both the Biden and Trump administrations warned California about this arrangement, and Congress closed the loophole in the 2025 budget law, so California must equalize the tax by January 1.
- Proposition 35, passed by voters in 2024, caps the tax on non-Medicaid enrollees at $2.50 per month, bars diversion of the revenue to the General Fund, and directs the money to provider reimbursements.
- The law Newsom signed in June raises the non-Medicaid tax to $8.85 per month, permits cash-flow loans to the General Fund, and was passed without the required three-fourths majority, so it violates Proposition 35 and the legislature said so explicitly.
- Newsom plans to ask federal officials to approve a Prop 35-compliant tax that he expects them to reject, and then seek approval of the non-compliant tax, effectively nullifying the voter-approved initiative.
- A tax that complies with both Prop 35 and federal law is feasible but would sharply cut the roughly $2 billion in revenue, so California must either pass costs on to consumers through higher premiums or lose the revenue.
- The conflict between Prop 35 and federal law was predictable and predicted, yet Newsom declined to oppose the measure clearly and instead equivocated.
Assumptions
- Insurers will pass the higher tax on to consumers in full or in large part through higher premiums.
- Newsom's administration is deliberately trying to get the Prop 35-compliant application rejected, rather than simply following a legally necessary sequence.
- A governor bears substantial responsibility for foreseeable fiscal conflicts arising from a ballot initiative, and a clearer public stance from Newsom would have changed the outcome.
- Violating the terms of a voter initiative is illegitimate even if the state faces a federal compliance deadline.
- Newsom's handling of this issue is representative of how he would lead as president.
- The only alternatives to the legislature's tax are higher premiums or a budget shortfall, with no other budget offsets available.