Iowa Republican lawmakers are finding themselves in an unusual position: at odds with business groups and taxpayer advocates as they seek to raise taxes on some health insurance providers.
Republicans have proposed the tax increase on health insurance providers, known as health maintenance organizations or HMOs, to fill a growing gap in the state’s Medicaid budget.
But Iowa’s major employers and business groups criticized the proposal, House File 2739, at a public hearing March 18, saying it would raise health care costs on employers and Iowans.
The Iowa House is expected to vote on the bill March 19.
Business groups criticize proposed tax increase
Logan Shine, a lobbyist for the National Federation of Independent Businesses, was critical of lawmakers’ lack of action on the group’s priorities this year.
“NFIB came into this legislative session with three priorities: reduce health care costs, property tax relief, energy rate reductions,” he said. “We have yet to see any meaningful passage of any of those three priorities, and the first thing that it looks like we’re going to be seeing is a tax increase on health care premiums.”
Shine said the top concern among the organization’s 10,000 member businesses in Iowa is the cost of providing health insurance to their employees.
“Obviously this legislation does not help that,” he said. “It only adds to the growing concern.”
The tax on health maintenance organizations would rise from 0.925% to 3.5% between Jan. 1 and Sept. 30 of this year.
Beginning Oct. 1, the tax would lower to 0.95%.
The tax increase is expected to bring in $123 million to shore up an expected $90.6 million Medicaid budget deficit in the current fiscal year, which will rise to $167.6 million in fiscal year 2027.
Nate Ristow, president and CEO of the Iowa Taxpayers Association, which has advocated for Iowa’s state tax cuts, accused Republican legislators of not practicing responsible budgeting, noting that the state’s budget increased by roughly 5% in each of the last two years.
“The divergence from responsible budgeting has led us to a point where making up less than 1% of our overall budget in order to cover additional costs in Medicaid apparently requires a tax increase on Iowans and Iowa businesses,” he said.
Scott Sundstrom, a lobbyist for Wellmark Inc., said the company expects to pay $24.2 million more in taxes this year because of the increase.
“That money will be passed on to Iowans as all taxes are and always have been,” he said. “So, I’m not here talking today about the costs Wellmark have to pay, I’m talking about the costs that Iowans have to pay in increased taxes on their health care costs.”
He said Wellmark estimates that its customers who are covered by the company’s plan will see a $115 tax increase per person.
“So for a family of four that’s nearly $500 in taxes that they did not expect before the year began,” he said.
State officials say tax increase is needed to fill Medicaid shortfall
State officials defended the need for the increase, saying it will bring in needed funds to fill the state’s Medicaid shortfall.
“This represents a way to bring in some one-time revenue for what is obviously a very concerning budget shortfall that we have in Medicaid here in Iowa,” said Iowa Medicaid Director Lee Grossman. “This additional revenue would be about $123 million for the Medicaid program, which is obviously a significant one-time source of dollars.”
Iowa Insurance Commissioner Doug Ommen disputed the idea that the tax increase would automatically increase bills for Iowans.
“The tax in this bill applies to an HMO directly,” he said. “It does not directly apply to Iowans or Iowa businesses. If the costs associated with this tax are passed to business customers, that would be within the business decision of the HMOs.”
Rep. Ann Meyer, R-Fort Dodge, said the state also plans to fill the Medicaid shortfall with general fund dollars. The bill provides an additional $70.3 million to the state’s Medicaid program.
“We have plenty of money in the general fund to do it,” she said. “But we also expect the companies that provide care to pitch in as well.”
She echoed Ommen’s argument that the bill does not mean an automatic increase in Iowans’ health care premiums.
“This bill does not direct the health care insurance companies to increase their rates for the nine months,” she said. “They would be making that decision on their own.”
Stephen Gruber-Miller covers the Iowa Statehouse and politics for the Register. He can be reached by email at sgrubermil@registermedia.com or by phone at 515-284-8169. Follow him on X at @sgrubermiller.
This article originally appeared on Des Moines Register: Iowa GOP at odds with business groups over health care tax increase
Reporting by Stephen Gruber-Miller, Des Moines Register / Des Moines Register
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