Repurposing of the Medicaid Health Plan Use Tax

August 10, 2016

Michigan has historically relied on various special taxes to support the general fund and therefore Medicaid services.  A prime example of this is the current imposition of Michigan’s sales and use tax (6 percent) on Medicaid services provided by Medicaid Health Plans and Prepaid Inpatient Health Plans, PIHPs.  While many believe this is an appropriate state taxing vehicle, CMS has raised concerns about the use of this tax (used by Michigan and other states) to arrive at revenue for federal match.  Agreement by the Executive Office and fiscal agencies to not use this revenue beyond December 31st has created an issue for Medicaid Health Plans that must be addressed through either repeal of the use tax on health plans or repurposing the use of revenue from the tax to satisfy CMS.  While repealing the use tax may ultimately be necessary to protect the financial viability of health plans, MAHP believes the best policy is to first seek an acceptable approach to “repurpose” the use tax provision that will meet the requirements of CMS. 

 

At the same time, many in the business environment continue to believe that the Health Insurance Claims Assessment, also known as HICA, unfairly increases costs of business. They are interested in expediting an ultimate repeal of that act. As a reminder, HICA was established to replace the use tax back in 2011—and while amended several times since then, remains in force including amendments this year to extend HICA to 2020. 

 

These two items are now the focus of the Senate Bill package (SB 987-990) that meets the MAHP supported objective of providing a sustainable means of supporting the general fund while covering the expense of the use tax and continue that tax on Medicaid Health Plans.  If this can be done and repeal HICA at the same time, then it is a “win/win” proposition.

 

 MAHP has worked closely with Senate leadership and the business community to address these objectives in concept papers and then in draft legislation that is now SB 987-990.  This legislation was introduced, hearings were held in the Michigan Competitiveness Committee, and Senate passage took place on June 8th—moving the package to the House—being referred to the House Insurance Committee.  These bills do the following:

 

1.        

SB 987.  Moves effective rate of HICA to 0% in 2017 and repeals the act in 2018.

2.        

SB 988.  Establishes a new Health Services Trust Fund to receive the deposit from the Use tax.  The trust fund then limits the expenditures from the trust fund to only non-Medicaid programs in the state budget.

3.        

SB 989.  Amends the Use Tax to clarify that revenue is to be deposited in the new Trust Fund established by SB 988.

4.        

SB 990.  Amends the State’s income tax act to provide revenue to cover the actuarial soundness requirement (cost of the use tax).

 

We appreciate the leadership of the Legislature in moving this package and will continue to work with House members to secure final passage in order to submit a formal request to CMS for their approval of this approach yet this calendar year.

 

Next week’s blog post will cover the final adoption of the Insurance Code package. 

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