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Industry Insider

By Delaney Newberry
Director of Human Resource Policy
Michigan Manufacturers Association

The Senate passed legislation that would establish a new tax on health insurance claims as a way to match federal Medicaid funding and could end up passing significant costs on to employers that provide health benefits, including small and mid-size businesses. The Health Care Claims Assessment (HICA) would assess a new tax on health, dental and vision claims.

The federal government has said the current Medicaid HMO use tax that Michigan and several other states use to match federal Medicaid dollars may soon be disallowed. Michigan is looking to replace $400 million, matched with $800 million federal dollars for a total $1.2 billion in Medicaid funding. We agree that the Medicaid program provides vital services to Michigan’s low-income citizens and we want to provide what is needed to protect the health of this population. We feel strongly that it is possible to maintain Medicaid funding levels without unnecessarily straining our tax payers and job providers.

The federal government permits states to assess “broad-based” provider taxes to support Medicaid services. The proposed legislation that passed the Senate at the end of the Spring legislative session presents a tax that would be assessed on all claims paid for health and medical services by insurers, HMOs and group health plan sponsors. Ultimately, the legislation would pass this cost on to the sponsor of health insurance coverage — the employer providing coverage or the individual paying for the insurance. Over two-thirds of the private insurance market is self-insured and this tax will be levied directly onto those companies.

Michigan’s job providers are already experiencing dramatic increases in healthcare costs and looking forward to 2014 and the full implementation of federal healthcare reform, those costs will soar. It is vital to the competitiveness of our state to make sure that the proposed healthcare tax doesn’t add to the strain on job providers. That’s why we’re proposing reasonable constraints that will make sure that this tax collects only what it’s intended to do, no more no less; that it is spent only on the targeted purpose, no more no less; and that there is some certainty for companies that will be paying the tax.

It is critical that the Michigan Legislature consider the following factors:

• Limit collections: The bills should ensure that amounts collected will target the required Medicaid match; no more, no less. As passed by the Senate, the tax would initially be assessed at a rate of 1 percent. If that rate collects more than the targeted $400 million in 2012, the agency retains any amount of over-collection before adjusting the rate back.
• In subsequent years, the tax is allowed to over-collect $40 million plus an annual inflator of medical CPI before rolling back to 103 percent of the prior year’s collections plus the medical CPI inflator. The over collections would not be returned to tax payers.
  MMA proposes a more precise revenue cap of one half -percent above the $400 million target. This would allow adequate funding to protect the health of our citizens, but would prevent the tax from growing at an excessive rate and unnecessarily straining job providers.
• Limit expenditures: The funds should be spent only to meet the necessary Medicaid match and not to offset General Fund spending for other discretionary programs or administrative functions. The bill currently includes a laundry list of additionally allowed expenditures including graduate medical education, uncompensated health and medical care and an initial $1 million and over $4 million annually to Treasury for administration of the tax.
• Establish certainty: This tax base is unique in that it is completely unpredictable. Companies have to have some certainty in their potential liability. MMA is proposing limitations that will provide some predictability, to guard against the costs of catastrophic claims. These amendments will give companies large and small a measure of certainty by establishing a ceiling to their annual payments for this new tax.
• Provide accountability: The new tax should be accountable through legislative review of the fairness of the tax so a two-year sunset is warranted. As passed, the bill provides a four-year sunset.

It is interesting to note that there would be no cost from this tax for employers that do not provide health coverage. As one of the largest payers of private insurance and group health plans, the brunt of this new tax will fall disproportionately on manufacturers. Ninety-one percent of manufacturers offer healthcare benefits to their employees, compared to 71 percent of all other industries, 68 percent of service-providing industries and 38 percent of leisure and hospitality.

The legislation is currently pending before the House Appropriations Committee. MMA is working to educate legislators on the impact of this tax to manufacturers and their employees and is offering constructive solutions to the concerns that have been expressed.

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