Medicaid Financing Proposal Passes State Senate Committee

Amidst a flurry of activity leading up to the summer legislative recess scheduled to begin next month, the Senate Michigan Competitiveness Committee unanimously approved, on May 25, an alternative to the much-bemoaned Health Insurance Claims Assessment Tax (HICA)—a broad-based tax on paid health claims.

Earlier this year, the legislature approved extending HICA through 2020. This remains a thorny issue for legislators and others close to the budget process, however, because many in the business community stand staunchly opposed to HICA, the revenue it has generated has fallen short of expectations, and the tax faces a renewed court challenge.

Finding a viable funding stream, beyond HICA, has emerged as a critical issue to the sustainability of Medicaid financing, as the federal government is forcing the state to end the current Use Tax on Medicaid HMOs because it is not considered to be broad-based enough. The Senate recently created a workgroup to look into alternatives of the tax, resulting in the introduction of Senate Bills 987, 988, 989 and 990.

Under this legislative package, a new version of the Medicaid Managed Care Use Tax would be created, although the revenue from the tax could not be used for Medicaid programs. Instead, Medicaid managed care actuarial soundness payments would be reimbursed through income tax revenue. The bills would also change the HICA sunset date from 2020 to December 31, 2018. If the federal government approves the new Use Tax, HICA would be reduced to 0% by January 1, 2017.

MAFP has been a supportive of the HICA tax as one option to acquire dedicated revenue for Medicaid, although the Academy has not taken a position on the new bill package, which is now headed to the Senate floor for further consideration.