Legislation Reducing Health Insurance Claims (HICA) Tax Goes to Governor

May 28, 2014

The Michigan House has passed legislation to reduce the rate charged to purchasers of health insurance, including job providers, under the Health Insurance Claims Assessment (HICA) Act.

Senate Bill 913 (Sen. Kahn, R-Saginaw) would reduce the HICA tax rate from 1 percent to .75 percent beginning July 1, 2014 before the tax fully expires on December 31, 2017. The legislation places a $450 million hard cap on revenues that can be collected under this tax and the HMO Use Tax.

If revenues collected by the two taxes exceed revenue projections, HICA payers would see excess collections proportionally credited back to them. These credits can be applied against any quarterly payments due or against the annual return. Furthermore, any excess revenues collected will be refunded when the tax expires.

The Michigan Chamber supports this legislation because the HICA tax is a disincentive to purchasing health insurance. We have long argued that, if we cannot eliminate the HICA tax entirely, we would like to see the rate reduced as low as possible.

Proceeds from this tax are used to fund Michigan’s Medicaid program. Since its enactment, the HICA tax has run short of revenue expectations by $120-$140 million. Legislators have tried unsuccessfully in the past to make up for this shortfall by increasing the HICA rate, a move we strongly opposed.

The HICA rate cut is made possible by another bill (SB 893) to reinstate the tax that proceeded the HICA tax, a six percent HMO Use Tax. Ultimately, the Use Tax revenues will be sufficient to cover the Medicaid program but a continuance of the HICA tax is needed in the short-term to fill in the revenue gap.

We fully expect the Governor to sign both bills in the coming days.

Please contact Wendy Block with any questions at (517) 371-2100 or wblock@michamber.com.