Michigan Health Claims Tax Proposed, Relied On in State Budget

The 2012 Michigan state budget, signed into law by Governor Rick Snyder on June 21, 2011, assumes the passage of the Health Insurance Claims Assessment Act. The proposed law involves a new 1 percent tax on paid health care claims and was introduced by the legislature as Senate Bill No. 348. The potential tax would be used to help support, both directly and by drawing down matching funds from the federal government, Michigan’s Medicaid program which provides health care to almost 1.9 million low-income Michiganders. The tax would impact every health insurer and self-funded employer plan in Michigan.

Currently, Michigan imposes a 6 percent use tax on Medicaid health maintenance organizations and Prepaid Inpatient Health Plans (“Use Tax”). The Use Tax generates almost $400 million. However, the Centers for Medicare & Medicaid Services (“CMS”) is considering passing rules which would bar the state from receiving federal Medicaid matching funds based on revenue earned from the Use Tax. The proposed health care claims tax is the state’s solution in anticipation of the potential loss of funds. Since the newly proposed tax is more broad-based, it carries a lesser risk of CMS disapproval while raising a comparable amount of funds.

The proposed tax, however, would most likely shift the financial burden of funding health care for low-income Michigan residents to Michigan consumers. Since the proposed tax would decrease insurers’ profitability, health insurance rates would likely increase accordingly. Manufacturers argue that the tax would bring hiring to a halt and also reduce employee benefits. Hospitals, on the other hand, point out that the loss of a substantial percentage of Medicaid funding would lead to job losses, service closures, and even potential hospital closures.

State Senator Roger Kahn, who introduced the bill, plans to propose a substitute bill which will address some of the concerns expressed by businesses. Subsequently, the bill is likely to be discussed by the Senate Appropriations Committee later this month.

For more information regarding pressing health care issues, please contact the Health Law Partners at (248) 996-8510 or (212) 734-0128, or visit the HLP website.