52 | Title and Summar y / Analysis
PROPOSITION PROVIDES PERMANENT FUNDING FOR MEDI-CAL
HEALTH CARE SERVICES. INITIATIVE STATUTE.
35 OFFICIAL TITLE AND SUMMARY PREPARED BY THE ATTORNEY GENERAL
BACKGROUND
State Charges a Specific Tax on
Health Plans. Since 2009, California
typically has charged a specific tax on
certain health plans, such as Kaiser
Permanente. This tax is called the
Managed Care Organization Provider
Tax (“health plan tax”). The tax has
worked differently over time. Currently,
it charges plans based on the number
of people to whom they provide health
coverage, including those in Medi-Cal.
The tax rate is higher for those in Medi-
Cal compared to other kinds of health
coverage. (Medi-Cal is a federal-state
program that provides health coverage
for low-income people. The federal
government and the state share the
cost of the program. By charging the
health plan tax, the state can receive
more federal funding.)
State Uses Tax for Two Purposes.
The amount of revenue raised by the
health plan tax has changed over time.
Based on recent legislative action, we
estimate the tax is expected to result
•
Makes permanent the existing tax on
managed health care insurance plans
(currently set to expire in 2026),
which, if approved by the federal
government, provides revenues
to pa
y for health care services for
low-income families with children,
seniors, disabled persons, and other
Medi-Cal recipients.
•
Requires revenues to be used only
for specified Medi-Cal services,
including primary and specialty care,
emergency care, family planning,
mental health, and prescription
drugs.
•
Prohibits revenues from being used
to replace existing Medi-Cal funding.
•
Caps administrative expenses and
requires independent audits of
programs receiving funding.
SUMMARY OF LEGISLATIVE ANALYST’S
ESTIMATE OF NET STATE AND LOCAL
GOVERNMENT FISCAL IMPACT:
• In the short term, increased funding
for Medi-Cal and other health
programs between roughly $2 billion
and $5 billion annually (including
federal funds). Increased state
costs between roughly $1 billion
to
$2 billion annually to implement
funding increases.
• In the long term, unknown effect on
state tax revenue, health program
funding, and state costs. Fiscal
effects
depend on many factors, such
as whether the Legislature would
continue to approve the tax on health
plans in the future if Proposition 35 is
not passed by voters.
ANALYSIS BY THE LEGISLATIVE ANALYST
The text of this measure can be found on page 109 and the Secretary of State’s website at voterguide.sos.ca.gov.
35 Attachment 11
For the full text of Proposition 35, see page 109. Analysis | 53
ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED
in between $7 billion to $8 billion each
year (annually) to the state. The state
uses this money for two purposes.
• Paying for Existing Costs in Medi-
Cal. Some revenue helps pay for
existing costs in the Medi-Cal
program. Using the tax revenue in
this way allows the state to spend
less money from the General Fund
on Medi-Cal. (The General Fund
is the account the state uses
to pay for most public services,
including education, health care,
and prisons. Medi-Cal is expected
to get around $35 billion from the
General Fund this year.) In other
words, the health plan tax revenue
reduces costs to the state General
Fund.
• Increasing Funding for Medi-Cal
and Other Health Programs. Some
of the revenue increases funding
for Medi-Cal and other health
programs. For example, the state
is increasing Medi-Cal payments
to doctors and other health care
providers. This is a new use of
health plan tax revenue. Some of
these funding increases began in
2024, but most will begin in 2025
and 2026. Once they all begin in
2026, the increases likely would
result in around $4 billion more
for Medi-Cal annually. Around half
of this amount will come from the
health plan tax. (The rest will come
from increased federal funding.)
Tax Will End, Unless It Is Approved
Again. The Legislature has not
permanently approved this tax.
Instead, it has approved it for a few
years at a time. The federal government
also must approve the tax. The tax was
most recently approved in 2023. It will
expire at the end of 2026, unless the
Legislature and federal government
approve it again.
PROPOSAL
Makes Existing Health Plan Tax
Permanent. Proposition 35 makes the
existing health plan tax permanent
beginning in 2027. The state would
still need federal approval to charge
the tax. The tax would continue to
be based on the number of people
to whom health plans provide health
coverage. The proposition allows the
state to change the tax, if needed, to
get federal approval, within certain
limits.
Creates Rules on How State Uses
Tax Revenue. In addition to making
the health plan tax permanent,
Proposition 35 creates rules on how
to use the revenue. Generally, these
rules require the state to use more of
the revenue to increase funding for
Medi-Cal and other health programs.
The rules are different in the short term
(in 2025 and 2026) and the long term
(in 2027 and after). Proposition 35
also changes which Medi-Cal services
and other health programs get funding
increases compared to current law.
PROVIDES PERMANENT FUNDING FOR MEDI-CAL
HEALTH CARE SERVICES. INITIATIVE STATUTE.
PROPOSITION
35 35
54 | Analysis
ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED
Figure 1 shows these changes in the
short term.
FISCAL EFFECT
In Short Term, Three Key Fiscal
Effects. In the short term (in 2025 and
2026), Proposition 35 would have the
following key fiscal effects:
• No Change to State Tax Revenue.
Proposition 35 does not change
the existing temporary tax on
health plans, which expires at the
end of 2026. For this reason, the
proposition would have no effect on
state tax revenue over this period
of time.
• Increased Funding for Health
Programs. Proposition 35 would
increase funding for Medi-Cal and
other health programs. This is
because the proposition requires
the state to use more health plan
PROPOSITION PROVIDES PERMANENT FUNDING FOR MEDI-CAL
HEALTH CARE SERVICES. INITIATIVE STATUTE.
35 35
For the full text of Proposition 35, see page 109. Analysis | 55
ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED
tax revenue for funding increases.
The total increase in funding
likely would be between roughly
$2 billion and $5 billion annually.
About half of this amount would
come from the tax on health plans.
(Because the federal government
shares the cost of Medi-Cal with
the state, the rest of the funding
increase would come from federal
funds. Including all fund sources,
Medi-Cal is expected to get over
$150 billion this year.)
• Increased State Costs. Proposition
35 would increase state costs.
This is because it reduces the
amount of health plan tax revenue
that can be used to help pay for
existing costs in Medi-Cal. Instead,
the state likely would have to use
more money from the General
Fund for this purpose. The annual
cost would be between roughly
$1 billion to $2 billion in 2025 and
2026. These amounts are between
one-half of 1 percent and 1 percent
of the state’s total General Fund
budget.
In Long Term, Unknown Fiscal Effects.
In the long term (2027 and after),
Proposition 35 makes the temporary
tax on health plans permanent and
creates new rules about how to spend
the money. The fiscal effect of these
changes depends on many factors.
For example, the state could approve
the tax in the future, as it has done
in the past, even if the proposition
is not passed by voters. Also, it is
uncertain how large of a tax the federal
government would approve in the
future. Given these uncertain factors,
the proposition’s long-term effects on
tax revenue, health program funding,
and state costs are unknown.
Temporarily Increases State Spending
Limit. The California Constitution has
various rules that impact the state
budget. One rule limits how much
state tax revenue can be spent on
any purpose annually. Voters may
increase this limit for up to four years
at a time. In line with these rules,
Proposition 35 temporarily increases
the limit by the size of the health plan
tax for four years. After the temporary
increase ends, the long-term effect of
the proposition on the state’s spending
limit is uncertain. This is because it is
unknown how Proposition 35 would
affect state tax revenue in the future.
Visit sos.ca.gov/campaign-lobbying/cal-access-
resources/measure-contributions/2024-
ballot-measure-contribution-totals for a list
of committees primarily formed to support or
oppose this measure.
Visit fppc.ca.gov/transparency/
top-contributors.html
to access the committee’s top 10 contributors.
35 PROVIDES PERMANENT FUNDING FOR MEDI-CAL
HEALTH CARE SERVICES. INITIATIVE STATUTE.
PROPOSITION
35 35
56 | Arguments Arguments printed on this page are the opinions of the authors and have not been checked for accuracy by any official agency.
PROPOSITION PROVIDES PERMANENT FUNDING FOR MEDI-CAL
HEALTH CARE SERVICES. INITIATIVE STATUTE.
35 ★ ARGUMENT IN FAVOR OF PROPOSITION 35 ★
CALIFORNIA’S HEALTHCARE SYSTEM IS IN CRISIS
Hospitals and health clinics are closing in rural and urban communities across California. Emergency rooms are
overcrowded. More than 40 California hospitals have
stopped offering labor and delivery services. Patients
wait months to see a doctor for important preventative
care, and often cannot get an appointment for specialty care when needed. The healthcare crisis is made worse
because the state has redirected more than $30 billion
in healthcare funding over the last 15 years to other
purposes.
THE CRISIS IS WORST FOR CALIFORNIA’S CHILDREN &
MOST VULNERABLE POPULATIONS
More than 15 million Californians rely on Medi-Cal for
health insurance coverage, including more than 50% of
all children in the state and low-income families, seniors, and persons with disabilities. But lack of adequate and ongoing funding means Medi-Cal patients must wait
months to see primary care doctors or cardiologists,
cancer doctors, pediatric specialists, or orthopedists.
YES ON PROP. 35 PROVIDES DEDICATED FUNDING TO
IMPROVE THE HEALTHCARE SYSTEM FOR ALL OF US—
WITHOUT RAISING TAXES
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 at primary care and specialty care physicians,
community health clinics, hospitals, emergency rooms,
family planning and mental health providers. Prop. 35
extends an existing levy on health insurance companies
that will otherwise expire in 2026. And Prop. 35 prevents the state from redirecting these funds for non-healthcare purposes.
YES ON 35 PROTECTS AND EXPANDS ACCESS TO
HEALTHCARE FOR ALL PATIENTS
Prop. 35 dedicates funding for:
• Expanding access to preventative healthcare so patients don’t have to rely on crowded ERs or urgent care clinics as their primary source of care
• Reducing wait times in emergency rooms
• Hiring more first responders and paramedics to reduce emergency response times
• Primary care and physicians’ offices
• Community health centers
• OBGYNs and specialty care like cancer and cardiology
care
• Family planning
• Expanded mental health treatment
• Healthcare workforce training to address the worker
shortage
• Services for Medi-Cal patients to expand access to
hospitals, physicians, women’s health centers, and
community clinics.
YES ON 35’s STRONG ACCOUNTABILITY
REQUIREMENTS ENSURE MONEY IS SPENT ON PATIENT
CARE
Prop. 35 prevents the state from redirecting these funds for non-healthcare purposes and requires that 99% of the revenues must go to patient care. It caps administrative expenses at 1%. Lastly, the measure requires annual
independent performance audits to ensure funds are
spent effectively and as intended.
PROP. 35 IS SUPPORTED BY FIRST RESPONDERS,
HEALTHCARE WORKERS, PHYSICIANS, NURSES, AND A
BIPARTISAN COALITION
Prop. 35 is supported by:
• International Association of EMTs and Paramedics
• Planned Parenthood Affiliates of California
• California Medical Association
• American Academy of Pediatrics, California
• American College of Obstetricians and Gynecologists—
District IX
• California Chapter, American College of Emergency
Physicians
• California Primary Care Association
• La Clínica de la Raza
• Community Clinic Association of Los Angeles County
• California Dental Association
• California Academy of Family Physicians
Yes on 35 will help address our urgent healthcare crisis and protect healthcare for all California patients.
www.VoteYes35.com
Dr. Yasuko Fukuda, Chair
American Academy of Pediatrics, California
Jack Yandell, Emergency Medical Technician (EMT)
International Association of EMTs and Paramedics
Jodi Hicks, CEO
Planned Parenthood Affiliates of California
35 Arguments printed on this page are the opinions of the authors and have not been checked for accuracy by any official agency. Arguments | 57
PROVIDES PERMANENT FUNDING FOR MEDI-CAL
HEALTH CARE SERVICES. INITIATIVE STATUTE.
PROPOSITION
35 ★ ARGUMENT AGAINST PROPOSITION 35 ★
NO ARGUMENT AGAINST
PROPOSITION 35 WAS SUBMITTED.