Some Iowa health insurance plans will see a tax increase expected to bring in millions of dollars to fill a shortfall in the state’s Medicaid budget, under a bill passed by the Iowa House.
The vote on March 19 puts Republicans in the unusual position of raising taxes after years of cutting rates, and Democrats argue the hike will cause Iowans’ health insurance premiums to rise.
“This bill is funding a Medicaid system — the system that takes care of our most vulnerable people in the state of Iowa,” said Rep. Shannon Lundgren, R-Peosta. “But a no vote on this bill is a vote with a billion-dollar insurance industry who can afford to help us fix a broken system.”
Rep. Megan Srinivas, D-Des Moines, who is a doctor, said she’s spoken to patients who already have difficulty affording medicine and health insurance premiums.
“We are not taking care of Iowans when we increase costs — when we increase health care costs,” she said. “We are making it more and more unattainable. And this new health care tax does exactly that.”
How would the bill raising taxes on some health insurance providers work?
House File 2739 raises taxes on health insurance providers known as health maintenance organizations, or HMOs, from the current rate of 0.925% up to 3.5% between Jan. 1 and Sept. 30, 2026.
That group includes companies that offer some of the state’s largest private insurance plans, like Wellmark, Sanford, Wellpoint and Aetna.
Beginning Oct. 1, 2026. the tax would drop to 0.95%.
The tax increase would allow the state to access federal matching funds and is expected to bring in $123 million to shore up Iowa’s growing Medicaid budget deficit, which is expected to rise to $167.6 million in fiscal year 2027.
The bill also appropriates $89 million to cover the state’s current-year Medicaid budget deficit of $90.6 million.
And it draws $347 million from the Taxpayer Relief Fund to cover the impact to Iowa’s budget from the federal :One Big, Beautiful Bill’s” tax cuts on tips and overtime pay.
10 Republicans joined Democrats to vote against the bill
House lawmakers voted 53-40 to pass the bill, sending it to the Iowa Senate for consideration.
Ten Republican representatives joined every Democrat in voting against the bill: Reps. David Blom, R-Marshalltown; Mark Cisneros, R-Muscatine; Bill Gustoff, R-Des Moines; Thomas Jeneary, R-Le Mars; Judd Lawler, R-Oxford; Norlin Mommsen, R-De Witt; Jennifer Smith, R-Dubuque; Ray Sorensen, R-Greenfield; Ryan Weldon, R-Ankeny; and David Young, R-Van Meter.
House Speaker Pat Grassley, R-New Hartford, told reporters the vote to pass the bill “is what responsible budgeting looks like.”
“We recognize we’re going to have these continued shortfalls,” he said. “We’ll have to make the decisions one year at a time to make sure we can fully fund them. All I can just say is our priority is making sure we are fully funding them, so we’re not having a reduction in service.”
Democrats say bill will raise health care premiums. Republicans say insurers can afford the cost.
Democrats criticized Republicans over the tax increase during more than an hour of debate.
They offered amendments seeking to strip the tax hike out of the bill, to require Iowa lawmakers to pay a 3.5% increase on their own health insurance premiums and to sell a Department of Public Safety plane purchased with COVID-19 relief funds that Gov. Kim Reynolds has used to travel to events and use the money to fund Medicaid.
Republicans rejected the amendments.
Democrats also sought to amend the bill to freeze health insurance premiums from 2027 until 2032.
But Lundgren read a letter from Wellmark Blue Cross and Blue Shield saying if the amendment were adopted the company “would be forced to withdraw from all lines of insurance in Iowa.”
“As a result, nearly 1.6 million Iowans would lose their health care coverage,” the letter said.
Rep. Dave Jacoby, D-Coralville, said Wellmark’s letter proves the company intends to pass on the costs of the tax increase to customers.
“That tax will be on you,” he said to Iowans. “The tax won’t be on corporations, the tax won’t be on Wellmark. The tax will be on you.”
Republicans pointed to insurance companies’ profit margins and said health insurers — who have been highly critical of the bill — do not need to raise premiums to cover the cost of the tax increase.
“But you would agree that they’re going to pass on this tax increase to consumers then?” House Minority Leader Brian Meyer, D-Des Moines, asked Lundgren.
“We are not in charge of what their premium rates are,” Lundgren answered. “What I can tell you is that when we lowered the premium tax a few years ago, they raised premiums. That’s on them. That’s a business decision that Wellmark Blue Cross Blue Shield makes.”
Scott Sundstrom, a lobbyist for Wellmark, said at a March 18 public hearing that the company expects to pay $24.2 million more in taxes this year because of the increase.
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.
Senate leader says ‘I’m not going to commit to a vote at this point’
A similar bill is eligible for a vote in the Senate, but Majority Leader Mike Klimesh, R-Spillville, said he was not ready to commit to holding a vote on it.
Klimesh acknowledged that “Republicans don’t want to raise taxes” but said Iowa has some of the lowest taxes in the country on health insurance providers.
He said there’s a limited window to bring in matching federal funds because of the “One Big, Beautiful Bill.”
“The federal government makes this opportunity available to us,” he said. “So it’s important for us to take advantage of while we can to draw down those additional federal dollars.”
But, he said, Senate Republicans are still “working through” some concerns with the bill.
“I’m not going to commit to a vote at this point in time yet,” he said. “But I anticipate us having robust conversations and seeing where that leads us as we attempt to build a consensus.”
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 House OKs tax hike on private health insurance to fund Medicaid
Reporting by Stephen Gruber-Miller, Des Moines Register / Des Moines Register
USA TODAY Network via Reuters Connect
