Health Insurance Claims Assessment Shortfall

By Evie Zois Sweeney
Muchmore Harrington Smalley & Associates
Senior Lobbyist

March 31, 2014 – Work on the state budget has begun in earnest with the legislature deliberating how best to spend, save, invest — depending on who you talk to — a nearly $1 billion state surplus. With excess revenue one would assume disposing of the Fiscal Year 14-15 budget would be a relatively “easy” task, but one aspect of the budget posing a major problem for the legislature is a structural shortfall in the health insurance claims assessment (HICA).

As those in the small business community may recall, on January 1, 2012 the Health Insurance Claims Assessment Act became effective, enacting legislation that levied a 1.0% assessment on eligible paid health claims to help the state pay for Medicaid. The assessment has been paid to the state primarily by insurers, HMOs and third party administrators. When developing HICA, the state assumed the assessment would generate an estimated $400 million but for the second consecutive year, HICA has fallen short of expectations, this year, by $130 million. That translates into a $400 million hole for the Community Health budget since the state dollars are used to draw down an additional $270 million in federal dollars.

What’s proving problematic is that a long-term solution to the shortfall is required, but how to tackle that shortfall is splintering political leaders. Leaders in the Senate want to address the shortfall on its own, via stand alone legislation, while House leadership is seeking to intertwine the HICA shortfall with changes to Michigan’s auto no-fault insurance. The Speaker has proposed a $25 per policy charge that would be specifically directed towards covering HICA, just one element of a multi-faceted proposal to change Michigan’s auto no-fault law. Businesses just want to ensure costs associated with the shortfall don’t somehow get passed onto them. With some Republicans and the vast majority, if not all Democrats refusing to alter auto no-fault, and no legislator interested in raising taxes in an election year, a solution addressing the HICA shortfall remains a piece of the budget still eluding legislators.