Iowans voice concerns that HMO tax bill could raise health insurance costs

Lawmakers heard concerns Wednesday that health care costs would grow for Iowans under a proposed retroactive, one-time tax increase on health maintenance organizations (HMOs) in fiscal year 2026 — without addressing the problems advocates argued are causing budget problems in the state's Medicaid program.

Advocates representing insurance organizations and Iowans on Medicaid and other impacted health coverage plans spoke at a public hearing on House File 2739. The bill was tentatively scheduled for debate Thursday in the Iowa House after it passed the Appropriations Committee in a 14-10 vote Monday.

The bill would raise premium taxes for HMOs, a type of Medicaid Advantage plan offered by private companies, from the current 0.925% rate to 3.5% between Jan. 1 and Sept. 30, 2026. In October, the rate would decrease to 0.95%, slightly higher than the current rate.

The proposal also would transfer $296.2 million from the Iowa Taxpayer Relief Fund to account for state revenue decreases caused by tax cuts through the "One Big Beautiful Bill" Act approved by President Donald Trump and Republicans in Congress, alongside a $70.3 million transfer from the state general fund to the Iowa Department of Health and Human Services put toward the state's Medicaid program.

The companion bill in the Senate, Senate File 2464, is also available for floor debate. It contains many of the same provisions related to HMO premium taxes and funding transfers, but takes a different approach to how funds can be moved in future years from the Taxpayer Relief Fund to address state revenue shortfalls.

Senators supporting the change said 85% of the increased taxes would be paid by the private entities overseeing Iowa's Medicaid system known as Managed Care Organizations, or MCOs — Amerigroup Iowa, Inc., Iowa Total Care and Molina Healthcare of Iowa — and 15% by other HMO plans. But advocates said during subcommittee meetings and at the public hearing the change would raise costs for other insurers.

Scott Sundstrom, a lobbyist for Wellmark, Inc., said he spoke in opposition to the bill Wednesday "not on behalf of our company, but on behalf of the hundreds of thousands of Iowans that we serve, and who paid premiums that will now see a massive increase" on the premiums they pay.

Sundstrom said Wellmark's HMO will face a retroactive tax increase of $24.2 million in 2026 under the proposal.

"That money will be passed on to Iowans, as all taxes are and always have been," he said.

He said Iowans who use Wellmark's HMO for health coverage will see an estimated $115 increase in costs per person this year because of the tax increase, representing roughly $500 in increased costs for a family of four.

"As we all know, health care is incredibly expensive," Sundstrom said. "It is too expensive. It is a system with lots of problems and costs, and this is going to make it worse."

But Doug Ommen, the state insurance commissioner, disagreed. He said with the timeline of enacting the temporary increase to 3.5% followed by the reduction to 0.95% for HMO tax rates, "Iowa will remain competitive with other states, and will operate with one of the lowest tax rates in the country, with both insurance premiums, as well as for HMO related taxes."

He also disputed characterizations that the proposal will increase health insurance costs for Iowans in the current year. He said under current law and through the state's actuarial review process, "these expenses cannot be added to any rates in the individual or small group market in this calendar year." He also emphasized the measure is not directly increasing costs for Iowans' health coverage plans.

"Others have suggested that the idea that the costs associated with this tax will be spread to Iowans and other businesses operating in Iowa," Ommen said. "The tax in this bill applies to the HMO directly, and does not directly apply to Iowans or Iowa businesses. If the costs associated with this tax are passed to business customers, that will be within the business decision of the HMOs."

Lee Grossman, Iowa Medicaid director with the state Department of Health and Human Services, said the tax increase represents an additional estimated one-time funding source of $123 million to address "a very concerning budget shortfall that we have in Medicaid here in Iowa."

The state Medicaid Forecasting Group on March 12 estimated Iowa Medicaid will face a $90.6 million deficit in FY 2026, and a $167.6 million deficit in FY 2027.

During meetings on the bill Monday, Rep. Gary Mohr, R-Bettendorf, said over the next five to seven years, lawmakers are expecting to see a "$600 million shortfall in Medicaid costs in the state of Iowa." He said he supported the measure as a way to have health insurance providers who make profits through this industry contribute to addressing Medicaid deficits.

Grossman also added at the public hearing that other states use HMO premium taxes to fund their state's Medicaid programs.

"I would also offer that this is a relatively common way for Medicaid programs across the nation to finance their Medicaid programs," Grossman said. "Iowa is one of about 22 states that currently finance Medicaid through this particular mechanism."

He said the proposed tax increase "represents a way to have some one-time funding in a way that does not result in reductions or costs to cuts to vulnerable Iowans." This argument — that the tax increase is needed to ensure Iowans receiving Medicaid coverage do not see cuts to care — was also brought up by Rep. Ann Meyer, R-Fort Dodge, in earlier discussions on the bill.

But several individuals speaking at the public hearing argued the best way to support Iowans on Medicaid was to reverse Medicaid privatization. Zach Mecham, a disability rights advocate, said as a recipient of Iowa Medicaid, the budget shortfall is an issue he and other Iowans who receive health coverage through the program warned lawmakers about when the program was privatized in 2015.

He said because of the Medicaid budget deficit, people on Medicaid are facing service reductions. This year, Mecham said, he was questioned by his MCO if his health care providers have "tried to wean me off of my ventilator, which I rely on to breathe." He said "only an organization that is desperate to cut services would ask that of someone like me."

The temporary tax hike would not solve this issue, Mecham said.

"The solution this year is to kick the can down the road," Mecham said. "… I'm worried that if we don't solve these budget issues — which frankly, I think means getting rid of privatized Medicaid — we're going to see more and more increases on their costs, and those costs are going to trickle down to us in the form of service cuts," Mecham said.

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