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New HMO tax approved by Republican-controlled committee

March 14, 2019

Despite protests from Associated Industries of Missouri (AIM), a new tax on HMO health plans was approved this morning by the Senate Appropriations Committee, chaired by Sen. Dan Hegeman. The bill, SB 29, was also reported from that committee, meaning it will be eligible for debate when the Senate returns from Spring Break March 22, 2019. NOTE: the Senate Committee Substitute version of the bill will contain the HMO tax. That substitute has not yet been printed and is not yet available.

AIM President/CEO Ray McCarty sent an email to all committee members, President Pro Tem Dave Schatz and Majority Floor Leader Caleb Rowden objecting to the new tax prior to the Committee’s action. He also discussed the issue with Chairman Hegeman prior to the vote.

During Committee discussion, Sen. Bill Eigel questioned the need for the tax. He asked the Chairman if there was a fiscal note (cost-benefit analysis that accompanies legislation) prepared on the HMO tax part of the bill. The Chairman responded the tax should produce approximately $19 million in total, including the federal match of approximately 2:1.

Senator Bill Eigel, voted against the HMO tax.

“Why is this so important? Does the state not have enough money,” asked Senator Eigel. Senator Eigel also questioned the impact the tax would have on premiums paid by employers and individuals on HMO plans. The tax would be due on all such plans and would be $1.80 per month per insured, or $21.60 per year per covered person. If you have 50 covered employees and dependents on your HMO plan, this HMO tax will cost your company $1,080 per year.

AIM appreciates Sen. Eigel’s questions and his opposition to the bill. He and Sen. Denny Hoskins voted against the HMO tax, but all other Committee members passed the bill with the HMO tax by a vote of 9-2.

Sen. Denny Hoskins, voted against the HMO tax.

In testimony earlier this week before the Missouri House Budget Committee, chaired by Rep. Cody Smith, Ray McCarty, President/CEO of Associated Industries of Missouri (AIM), let the Committee know AIM opposes such a tax. McCarty also sent an email last week to many members of the Senate Appropriations Committee, in opposition to the concept of an HMO tax.

The tax is proposed as an amendment to bills that would otherwise extend current federal reimbursement allowance taxes. Federal reimbursement allowances (FRA) are taxes paid by hospitals, ground ambulance services and other entities, that are pooled and matched by federal funds to help fund Medicaid. AIM supports such taxes as the entities paying the taxes receive benefit from the taxes.

The proposed HMO tax is different. It would be a tax on HMO premiums, either as an amount per insured or percentage of premiums. The current discussion is around a tax of $1.80 per covered person per month, $21.60 per covered person per year. For an employer with 200 employees and dependents covered under their HMO plan, the tax would be $4,320 per year! The tax would be paid by employers who would receive no benefit from the tax. The tax would be used to generate additional Medicaid money.

“While AIM supports the FRA process because the entities that pay those taxes benefit from additional federal money for Medicaid, we strongly oppose any tax on HMO’s or any other type of health plan,” McCarty told the House Budget Committee. “We polled our membership and found this tax would impact employers from 5 employees to 10,000 employees. We are also concerned that if such a tax were enacted, a similar tax may be enacted in the future that would tax other types of health plans, expanding the scope of the tax even further.”

A corresponding reduction in another type of tax has also been considered; however, McCarty points out that the tax increases and decreases would not impact the same group of people. It would be difficult to craft an income tax cut, for example, that would provide the same benefit as a business may pay in this new HMO tax.

Aside from surveying members on the issue, AIM’s Executive Committee considered and voted to oppose the HMO tax. AIM has a policy against tax measures that increase the cost of doing business in Missouri without a corresponding benefit.

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