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Lansing — Gov. Rick Snyder has vetoed a package of bills Thursday that would have overhauled how health insurers are taxed and shifted how the state’s health care program for low-income individuals is funded.

The legislation would have ended a tax on health insurance claims assessments 18 months earlier than the tax’s termination planned under a measure the Legislature passed earlier this year. Snyder said in a statement that helped prompt the veto.

The latest package also might run afoul of federal law because of the way it would have matched federal dollars to fund Medicaid in the state, Snyder said.

“I am very concerned that the federal government would not recognize this tax structure as an eligible Medicaid matching fund source, putting at risk federal funding for critical state health programs and leaving our state budget out of balance,” Snyder said.

Snyder’s Budget Director John Roberts expressed concern last week that the proposed replacement tax structure might not meet federal requirements and could put pressure on future budgets.

It is rare for Snyder to veto a bill from the Republican-controlled Legislature.

House Speaker Kevin Cotter, R-Mount Pleasant, said in a statement that he’s disappointed with Snyder’s veto — a sentiment echoed by Senate Majority Leader Arlan Meekhof, R-West Olive.

“This was a good plan, and I am disappointed the governor disagreed,” Cotter said. “I understand the concern about federal disapproval, but the federal government has not been a productive partner on this issue and has left us with few options that also protect Michigan families. We have been willing to work with them, but they have been entirely unwilling to work with us.”

The speaker said lawmakers will have to continue working on the issue.

Business groups such as the Michigan Chamber of Commerce supported the legislation and praised it when the state Senate gave it final legislative approval last Thursday because it ended the so-called HICA tax sooner than it would have ended otherwise.

The bills Snyder vetoed would have replaced a “bad tax” with a new revenue source for Medicaid that would have been fairer, said Michigan Chamber of Commerce President and CEO Rich Studley.

“We are very disappointed with the governor’s decision,” Studley said in a statement. “The challenge now is the Medicaid funding problem won't go away, and there is no solution in place. Going forward, the Michigan Chamber will strongly oppose any effort to further increase or extend the HICA tax.”

The package Snyder vetoed would have shifted how certain Medicaid costs are funded and ended a tax on health insurance claims that business groups have opposed. It also would have continued a tax on Medicaid managed health care organizations.

The Health Insurance Claims Assessment tax is paid by insurance carriers, third-party administrators and employers. It helps support Medicaid coverage for lower-income residents, and Snyder had warned previously that expiration could cause significant budget problems for the state.

The Centers for Medicare and Medicaid Services sent a letter in 2015 to the state saying it had until December 2016 to stop using the Medicaid Managed Care Use Tax to match federal funding for Medicaid.

mgerstein@detroitnews.com

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