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Senate OKs overhaul of how health insurers are taxed

Michael Gerstein
The Detroit News

Lansing — The Senate overwhelmingly approved a package of four bills Thursday to overhaul how health insurers are taxed, though Gov. Rick Snyder’s chief budget director has said he opposes the change.

The Republican-controlled Senate voted with support from Democrats and Republicans to pass the package, which now goes to Snyder for consideration. It shifts how certain Medicaid costs are funded and ends a tax on health insurance claims that business groups have opposed. It also continues a tax on Medicaid managed health care organizations.

The votes follow the Legislature’s previous approval to extend the Health Insurance Claims Assessment tax through July of 2020 instead of allowing it to expire at the end of 2017.

But the Snyder administration has expressed concern that the replacement tax structure will not meet federal requirements, and Budget Director John Roberts continues to oppose the legislation, a spokesman said Thursday.

“From a budget perspective, he is concerned about long-term balance and he wants to avoid creating unnecessary risks and pressures on future budgets,” said Kurt Weiss. “He’s continuing to have dialogue with the Legislature in hopes of finding a solution that can avoid some of the risks he is concerned about, but he does not support the bills in their current form.”

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 has warned 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.

Lawmakers approved the extension previously as a stopgap measure before they could work on a more comprehensive overhaul, said Amber McCann, a spokeswoman for Senate Majority Leader Arlan Meekhof, R-West Olive.

McCann said that while it’s a complicated series of adjustments with “many moving parts,” the main reform is swapping the pool of state money used to match federal dollars for Medicaid, which McCann said does not introduce any new burdens on tax payers.

Snyder and the Legislature created the broad health claims tax in 2011 after the federal government objected to more narrow versions. The previous extension of the tax in February is projected to generate $247.5 million in fiscal year 2018, $340 million in 2019 and $262.5 million in 2020, according to the Senate Fiscal Agency.

McCann said the Senate-approved overhaul Thursday does not change the amount of money generated.

The Michigan Chamber of Commerce applauded the Senate action Thursday and urged Snyder to uphold the repeal of the “HICA tax,” which the group calls “anticompetitive.”

“Repeal of Michigan's wholly unique and uncompetitive Health Insurance Claims Assessment, or 'HICA Tax,' has long been a priority for the Michigan Chamber because the tax makes it more costly and difficult for individuals and employers to purchase health insurance,” said Jim Holcomb, senior vice president for business advocacy and general counsel for the Michigan Chamber.

Sen. Ken Horn, a key sponsor on the bill package, said the proposede HICA tax replacement “solves a long-term problem in a sustainable manner” and expressed confidence legislators have “overcome” any objections from the Centers for Medicare and Medicaid Services.

But the Frankenmuth Republican acknowledged “mixed signals” from Snyder, who can veto any bill that reaches his desk.

“I think he has some concerns,” Horn said. “It hasn’t been made clear to us what those concerns are, so we’ll see what happens. … We have no alternative plan, and we haven’t heard one from the governor.”

mgerstein@detroitnews.com