Iowa Senate Committee Approves One-Time Tax Increase on Certain Health Insurance Plans

If no one funds local news, your community is just rumors. Help Decorah News bring facts home. The Iowa Senate Ways and Means Committee advanced a measure Wednesday that would impose a one-time tax increase of $173 million on health maintenance organizations (HMOs) in order to address budget shortfalls in Iowa Medicaid. Senate File 2464, approved 10-6 by the committee, would increase the taxes on HMOs, a type of Medicaid Advantage plan offered by private companies for health care through a specified network, from the current rate of 0.925% of premiums to 3.5% between Jan. 1 and Sept. 30 this year. On Oct. 1, the tax would decrease to 0.95%. In addition to the tax increase, which lawmakers estimated would provide the state $173 million in one-time funds and $61 million in the years following, the bill also would route $70.3 million from the state General Fund to the Iowa Department of Health and Human Services for the state's Medicaid program.Sen. Jesse Green, R-Harcourt, said the bill "provides a solution to a challenge." "The challenge is based on the December Medicaid forecast," Green said. "Iowa Medicaid need is nearly $200 million without considering cost containment measures for fiscal year '27." Green said the "One Big Beautiful Bill" Act approved by President Donald Trump and Republicans in Congress caps premium tax rates at 3.5%, a threshold Iowa is "well under" due to the Centers for Medicare and Medicaid Services' requirements on premium taxes. But CMS, in discussions with Iowa HHS, "has provided the opportunity to review the state's request to temporarily increase the premium tax," he said. Under the measure, 85% of the increased taxes would be paid by Managed Care Organizations, or MCOs, the private entities overseeing much of the state's Medicaid coverage—Amerigroup Iowa, Inc., Iowa Total Care and Molina Healthcare of Iowa—and 15% by other HMO plans. But private health insurance providers have rallied against the proposal, saying the measure would result in major increases in health care costs. Matt McKinney with the Federation of Iowa Insurers said the proposal would result in a 238% tax hike for health insurance costs. Advocates representing private insurance companies like Wellmark Blue Cross and Blue Shield said the measure would retroactively increase taxes from $11.5 million to $61.7 million in the current year for Iowans covered through the Wellmark Health Plan of Iowa. Democrats said the measure will result in higher health care costs for Iowans, as these insurance companies shift those costs onto Iowans. Sen. Janet Petersen, D-Des Moines, said she opposed the bill in the subcommittee and committee meetings because it would result in a tax increase for Iowans who receive health insurance through the Affordable Care Act and those who receive private health insurance through the small individual market, for small businesses and other entities. "I don't believe that we should be taxing Iowans on their health insurance," Petersen said. "It's already outrageously expensive. And asking them to do so to help bail out the MCOs just, simply, I think is wrong." There are other changes included in the measure aimed at allowing lawmakers to address budget shortfalls. The bill would transfer $296.2 million from the Iowa Taxpayer Relief Fund to make up for funds lost through tax cuts included in the tax and spending bill signed into law by President Donald Trump in July 2025. It would also remove the current 50% limit on how much money can be taken from the Taxpayer Relief Fund to address the difference between state appropriations and revenues. The measure would remove the cap entirely in the current fiscal year, then move to a 75% cap in fiscal year 2027, and then return to the 50% cap in FY 2028. Petersen said the impact of the tax and spending bill approved by Republicans in Congress, including Iowa's federal delegation, "is actually gonna be growing." She said she had "concerns" about making up for the budget shortfalls by "front-loading" costs through the Taxpayer Relief Fund. Green responded that the Taxpayer Relief Fund transfer is needed because "some of the changes with the Big, Beautiful Bill (weren't) realized at the time," and change is needed "in order to make sure that Iowans benefit from those changes" in the federal law. "I think this is a tool in the toolbox to help fill that gap in Medicaid," he said. The House advanced a companion bill, House Study Bill 762, through a subcommittee Thursday. Be the first to know! Sign up for the free newsletter and unlock exclusive updates, breaking news, and tips from around the community.