Health Insurance Claims Assessment

Governor Snyder has officially signed legislation that reintroduces a 6% Use Tax assessed on Medicaid managed care organizations and a separate bill that decreases the 1% Health Insurance Claims Assessment (HICA) to 0.75% effective July 1, 2014. The welcome legislation is being heralded by small business in Michigan as a win for their bottom lines.

For over a decade, Michigan has creatively crafted several health care provider assessment programs to leverage additional federal Medicaid match dollars. The intent is to increase reimbursement rates to Medicaid providers while simultaneously incentivizing these providers to accept more Medicaid patients. As federal laws have changed, Michigan has been forced to adapt and create new assessment vehicles. As such, in 2009 Michigan applied a 6% Use Tax on Medicaid managed care organizations. In 2012, after growing concerns of a federal change, the legislature removed the use tax assessment and instead adopted a 1% tax on most health care claims. Revenue estimates have consistently fallen short of the needed dollars, thus creating a funding imbalance in the budget. The legislature has been looking for a structural fix for years. Hence, with original fears of a federal interpretation change placated, SB’s 893 and 913 were adopted this year in hopes of finally addressing the shortfall and providing a tax decrease for businesses in Michigan.

SB 893 reinstates the 6% Use Tax on Medicaid managed care organizations. SB 913 uses a portion of those savings to decrease the 1% HICA to 0.75%. SB 913 also preserves the December 31, 2017 HICA sunset (elimination). The bill also stipulates that should the federal government prohibit the Use Tax assessment of Medicaid managed care providers in the future, the HICA would bump back up to 1%. Senate Bill 893 includes a cap on combined revenues generated between the Use Tax and HICA of $450 million. Any revenue in excess of the cap would be credited back to HICA payers in fiscal year 2015-16.