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Gov, Legislature On Collision Course Over HICA

September 27, 2016

The Health Insurance Claims Assessment (HICA), a fee designed to draw down $600 million in federal Medicaid money, would go away and be replaced by a creative tax shift starting Jan. 1, 2019, under legislation the House passed Thursday along mostly party lines.   In passing the four-bill package without major changes, the Legislature is charting a collision course with Gov. Rick Snyder and the Budget Office, which opposes pitching HICA until at least 2020, when it’s more clear whether the federal government will sign off on the replacement.

Budget Office spokesperson Kurt Weiss said that outside of the risk, the Budget Office has a few other changes it would like to make to the package besides moving the sunset.

For starters, it doesn’t believe the federal government will conclude the tax structure will meet federal muster, exposing the state to a potential disallowance down the road.

“Our credibility with the federal government is important and we assured CMS that the HMO Use Tax would be eliminated at the end of calendar 2016,” Weiss said. “Extending the HMO Use Tax into 2017 is going against our word.”

However, House Appropriations Committee Al Pscholka (R-Stevensville) said in working on this issue for the past four to five years his opinion is “this puts us in compliance.”

“I think we’re in good standing. This provides the right amount of resources. It fits with what CMS wanted us to do with a broad-based tax. I think it’ll work.”

Under SB 0987, SB 0988, SB 0989 and SB 990, the Senate is using income tax revenue to fund Medicaid and using the use tax on Health Maintenance Organizations (HMOs) — which the Centers for Medicare and Medicaid Services (CMS) said was too narrow in scope to be used to draw down the Medicaid Fund — to pay for services the income tax had been covering.

The Governor had proposed getting rid of the use tax on HMOs because of the CMS ruling on the subject, but the Legislature is attempting the fund switch. If the use tax on HMOs was too narrow, surely the income tax is not. The Senate passed this change in June.

House Minority Leader Sam Singh (D-East Lansing) said he’s concerned the new administration will not approve this “shell game” and Michigan is “gambling” with $600 million in federal money by not simply extended the HICA fee.

However, Republicans believe the change will pass federal scrutiny because they are using the state’s broadest tax, the income tax, to draw down the matching fund. It’s a move the Michigan Chamber of Commerce, the Michigan Manufacturers Association and other business interests have supported.

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

Insurance carriers, third-party administrators and self-insured entities pay the .75 percent HICA tax on all paid health claims, which raises costs for employers in the eyes of the state’s business community.

Some Republicans also believe it’s high time the state flex its muscles on its state sovereignty and that in the slim chance the feds say no to this change, Michigan can challenge it in court with a state’s right argument.

Under the SB 0987 and SB 0998 the reincarnated use tax will collect money that will go into a special Health Services Fund that will fund General Fund programs and the School Aid Fund with the money the income tax had been funding.  

In large part, the package is designed to resolve federal concerns how the state meets its obligations under the Medicaid program and yet eliminate the HICA tax. 

All of the chamber’s Republicans voted for the change in SB 0987, the main bill, and SB 0990, with the exception of Rep. Tom Hooker (R-Byron Center), who voted no. All of the chamber’s Democrats voted against the two bills except Rep. Paul Clemente (D-Lincoln Park), who voted yes. The final vote was 62-45 on those bills.

The other two bills passed 61-46 with Rep. Ken Goike (R-Ray Twp.) voting no HB 988 and HB 0989.

The bill will need to go back to the Senate for concurrence before moving to the Governor.

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