In late 2012, we alerted you to the fact that state lawmakers were trying to dramatically increase the Health Insurance Claims Tax (“HICA Tax”) on Michigan job providers in order to balance the state’s budget. Although we were successful in defeating the lame duck proposal, a new bill was reintroduced earlier today (Tuesday, April 30th) and it appears the Senate Appropriations Committee is on the verge of beginning a new round of action on this ill-conceived proposal.
Senate Bill 335 (Sen. Kahn, R-Saginaw) would vastly expand the HICA Tax from a one-percent tax on paid health insurance claims to a variable rate tax, whereby unelected Treasury officials will adjust the rate every three years to reflect medical inflation for the preceding three-year period. The bill would also remove the January 1, 2014 sunset date, pushing the HICA tax obligation on job providers out indefinitely.
The HICA Tax was passed in 2011 as a replacement for the HMO Use Tax, which was the subject of federal scrutiny. The revenue from the HICA Tax is used to meet federal match requirements to fund Michigan's Medicaid program. While this tax has been in place for a little over a year, it has not met revenue expectations, which has created about a $140 million hole in the state budget. Data has not been analyzed to determine why the HICA Tax is collecting less than projected and it is unclear whether the state has done due diligence in collecting the current tax from all taxpayers.
The Michigan Chamber is opposed to SB 335 because it would provide for an uncapped, unlimited and unpredictable tax rate, providing very little certainty to employers as they look to forecast their future liabilities. In addition, increasing taxes on a benefit that many businesses voluntarily provide to their employees is a disincentive to continuing to provide that coverage.
While we recognize a solution to the funding hole is needed to avoid significant cuts to health care providers’ reimbursement rates and a cost-shift to private payers, we do not believe SB 335 is the right answer. Instead, we are urging lawmakers to embrace alternative solutions, such as filling the shortfall with an assessment on drivers as is contemplated in House Bill 4612 (Rep. Lund, R-Shelby Township). This proposal has the net benefit of stabilizing and expanding the tax base while providing a stable revenue source to fill the Medicaid funding gap.
The Senate Appropriations Committee plans to begin debate on this legislation in the near future. As a Michigan Chamber member, please take the opportunity to voice your opposition to this punitive and unlimited tax increase today!