LANSING, Mich. (AP) — A continuation of a 1 percent tax on health insurance claims passed Michigan’s Senate Thursday, but yet to be resolved is how to ensure the levy brings in enough revenue for Medicaid, which serves 1.9 million low-income state residents.
The tax, which took effect nearly 17 months ago and replaced a different tax, is due to expire at the year’s end unless lawmakers act. Legislation headed to the House on a 25-13 vote would extend collection of the tax through 2017.
The move came the same day the Republican-led Senate passed a budget bill without Gov. Rick Snyder’s proposed expansion of Medicaid eligibility to 320,000 more low-income adults. Talks over expanding the health insurance program will continue as legislators review a House GOP alternative that would make more people eligible but include a four-year cap on coverage for nondisabled adults.
Even in states viewed as strong supporters of the Patient Protection and Affordable Care Act (PPACA), Democratic officials like California Gov. Jerry Brown have expressed concerns about the stability of PPACA Medicaid expansion funding.
In Michigan, the claims tax is a touchy issue. While the Republican majority opposes a tax increase, the existing tax brings in at least $130 million a year less than expected. Without the money, Michigan could lose $400 million in a Medicaid match from the federal government in both this budget year and next.
The Snyder administration and nonpartisan legislative analysts in 2011 overestimated how much the new tax would generate, in part because out-of-state health insurers not subject to the tax paid far more claims than expected. The tax is not applied to Medicaid and Medicare claims or to out-of-pocket costs.
Fourteen Republicans and 11 Democrats voted for the bill, while 12 Republicans and one Democrat voted against it.
Senate Minority Leader Gretchen Whitmer, D-East Lansing, said the GOP majority only talks to her side when it needs “tough votes” on contentious revenue-raising measures, but not to set other legislative priorities.
“Let today be an example that we are willing and interested in being at the table, determining what those priorities are and how we go about achieving them,” she said. “Please let the governor note, this is what good faith looks like.”
Senate Appropriations Chairman Roger Kahn, a Saginaw Township Republican and sponsor of the legislation, said the problem needs to be fixed by Oct. 1, the start of the next fiscal year. There are a number of ways to make up the revenue shortfall if legislators do not raise or change the Health Insurance Claims Assessment, or HICA, he said.
To do so, Kahn suggested taking money from a pair of trust funds, the state’s rainy day savings account or the $483 million surplus in the current budget. Another option is cutting the Medicaid budget.
As a permanent fix to make up the Medicaid shortfall, Snyder is proposing to add a $25 per vehicle fee to auto insurance premiums. It is part of a broader proposal to cap medical coverage for people catastrophically injured in car accidents and to give motorists a $125 break in auto insurance premiums.
At least one business group is opposing the health claims tax to build pressure for the Legislature to change the auto no-fault law, Kahn said.
“My judgment is no-fault doesn’t pass,” he said. “If that doesn’t pass, then the follow-up question is what are you going to do about HICA?”
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