House panel votes to raise certain taxes, transfer money to offset Medicaid shortfall

A bill advancing rapidly in the Iowa House would make a one-time tax increase on some health insurers and draw money from the Taxpayer Relief Fund to address the state's Medicaid shortfall.

House File 2739 was passed by a House Appropriations subcommittee and the full committee Monday. It would increase premium taxes on health maintenance organizations (HMOs) retroactively from the current 0.925% rate to 3.5% between Jan. 1 and Sept. 30, 2026. The rate would be lowered to 0.95% — slightly above the current rate — following this temporary increase. The companion to this bill in the Senate was passed through the committee process last week.

The bill would also include a $296.2 million transfer from the state's Taxpayer Relief Fund to account for state revenue declines caused by changes made through the federal "One Big Beautiful Bill" Act. The move would accompany a $70.3 million transfer from the state general fund to the Iowa Department of Health and Human Services for the state's Medicaid program.

Though Rep. Gary Mohr, R-Bettendorf, chair of the Appropriations Committee, called for the Monday discussion to focus on the funding components of the measure, much of the discussion involved the tax increase proposed in the bill. At the subcommittee meeting, Matt McKinney with the Federation of Iowa Insurers said the measure would cause an increase in health care insurance costs for Iowans.

"If you just do the math, it's a 278% increase in taxes specifically for health insurance companies, which of course don't just shake money out of the tree in the backyard," McKinney said. "They collect that through premiums from businesses and insureds."

He also said because the measure was retroactive, it would create lasting uncertainty within the insurance industry — an important economic driver in the state that makes up roughly 11% of the state's gross domestic product. McKinney said some insurance companies were concerned that tax increases could expand to other, non-HMO insurance plans in the future, and could look at moving outside of Iowa if taxes are raised significantly.

"We ask you to not compromise the decades of work to attract a great industry here, to build jobs here for a nine-month temporary fix to a real problem," McKinney said.

Mohr said the reason lawmakers were considering the tax increase was to create a "partnership" between insurance companies and Iowa taxpayers in addressing the funding shortfall.

"It's no surprise that we've all been aware of in the next five to seven years, we're looking at a $600 million shortfall in Medicaid costs in the state of Iowa. The state of Iowa is financially in a position to be able to afford to cover the $600 million. But we think a better approach is, why would the state — the taxpayers of Iowa — have to fund $600 million of expenses for Medicaid, and those who make a profit in this business, the insurance companies, collect the profits but pay nothing to that $600 million? I don't think that's fair for the taxpayers of Iowa."

He said he believed the temporary increase was a "fair" way to approach the issue, saying current estimates from Republicans have found the tax hike would generate between $140 million and $150 million — meaning "the taxpayers of Iowa are still going to be on the hook for $450 million."

But Democrats and advocates like Phil Jeneary, executive director of Iowans for Affordable Healthcare, said the tax increase on HMOs will be paid for by taxpayers, who will see higher health insurance premiums.

"I'm not here to defend the insurance companies," Jeneary said, but increasing taxes on HMOs would result in health insurance costs rising for Iowans who already are seeing higher rates as federal Affordable Care Act premium tax incentives expired earlier in 2026.

During the committee meeting, Rep. Megan Srinivas, D-Des Moines, said the measure is projected to result in a family of four paying roughly $500 more in health care premiums each year.

"When people are living paycheck to paycheck, talking about whether they can afford gas this month versus a dozen eggs, we're looking at this bill increasing costs on Iowa families," Srinivas said. "A $115 per belly button is the premium increase for the year. … And this isn't just a temporary increase, because we're looking at after this September 30th deadline, we're increasing the (base tax) even more, and that cost is going to go on Iowans, making health care more and more unaffordable."

Rep. Ann Meyer, R-Fort Dodge, said the bill ensures that Iowa's Medicaid program can continue to provide services for those most in need. She also said 49 of 50 other states "utilize" higher HMO taxes, as allowed by federal law, that were being discussed in the bill. She said the measure does not increase health care provider taxes or decrease reimbursement rates for providers.

In providing funding to offset changes made by the federal tax and spending law, Meyer argued the bill was allowing more money to stay with Iowans.

"What we're doing by transferring the money … from the Taxpayer Relief Fund to (fund) the One Big Beautiful Bill is putting that money back into the pockets of Iowans," Meyer said. "Those are federal tax cuts which I was very much in support of. Those … are not tax cuts for billionaires. Billionaires do not collect tips. Billionaires do not collect overtime. That bill put money in the pockets of Iowans. That's what we're doing when we're transferring the money from the taxpayer relief fund to the general fund."

A House public hearing on the bill was scheduled for Wednesday.