Michigan Senate Passes Legislation Reducing Health Insurance Claims Tax

May 12, 2014

The Michigan Senate 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 on July 1, 2014 before the tax fully expires on December 31, 2017. Furthermore, the legislation specifies if revenues collected by the tax exceed revenue projections, health insurance purchasers would see excess collections credited against their rate in the following year and any excess revenues 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.

Please contact Wendy Block or Tricia Kinley with any questions. Wendy and Tricia may be reached by phone at (517) 371-2100.