Chamber Praises State House for Passing Legislation to Repeal Health Insurance Tax

September 28, 2016

Legislation championed by the Michigan Chamber to repeal an anti-competitive tax on individuals and businesses purchasing health insurance was passed by the Michigan House last week. The Michigan Chamber applauds Speaker Cotter and Insurance Committee Chair Tom Leonard for their leadership in making health insurance more affordable. 

Repeal of Michigan's wholly unique and uncompetitive Health Insurance Claims Assessment, or “HICA Tax,” has long been a priority for the Michigan Chamber because the tax makes it more costly and difficult for individuals and employers to purchase health insurance. The HICA Tax is a 0.75 percent tax on paid health insurance claims. It is paid by individuals and businesses alike and has added nearly $1 billion to the cost of health insurance since its enactment five years ago.

The HICA Tax was hurriedly put into place in 2011 because the Use Tax on Medicaid Managed Care Organizations was subject to federal scrutiny and it was thought it would be deemed an impermissible mechanism to draw down federal dollars to help fund Michigan's traditional Medicaid program. Five years later, we can safely say the HICA Tax has been a total flop, as it not only has added over $1 billion to the cost of health insurance, but also has proven to be an unstable and inadequate revenue source for the state.

Senate Bills 987-990 will restructure the existing Use Tax on Medicaid Managed Care Organizations (MCOs) by bringing the tax into compliance with federal law. In doing so, the state can fully preserve necessary funding for Michigan’s traditional Medicaid program and boost the School Aid Fund by over $150 million. Absent this legislation, the state faces an annual shortfall for the traditional Medicaid budget in Fiscal Year 2017 and beyond and a fiscal cliff in 2020 when the current HICA tax expires, leaving the state with a $332.5 million annual shortfall.

The Senate bills are a win-win-win. The bills are a win for individuals and businesses who will see their health insurance premiums drop and a win for the state budget because it allows Michigan to continue to collect and use MCO Use Tax revenues and use those revenues for the School Aid Fund and other budget priorities. It is also a win for those serving the Medicaid population because this legislation will ensure there’s a stable revenue source for the traditional Medicaid population.

Senate Bills 987-990 now return to the State Senate for a concurrence vote. We expect this vote to occur in mid-October or early November.