Iowa HMO Tax: Dems Warn of Higher Health Coverage Costs

Iowa Governor Kim Reynolds may soon face a decision on legislation that would significantly increase taxes on health maintenance organizations (HMOs) in the state, a move intended to address a growing shortfall in the Medicaid budget. The Iowa Senate on Monday sent House File 2739 to the governor’s desk, following its passage in the House last week.

The bill proposes raising the health insurance tax on HMOs from the current rate of 0.925% to 3.5% for a period spanning January 1st to September 30th of this year. State officials estimate this increase will generate an additional $204 million this year for Medicaid, which is currently facing an estimated $91 million deficit for the current fiscal year, with a projected $168 million shortfall anticipated for the next.

Democrats in the Senate have voiced concerns that the tax increase will ultimately lead to higher health coverage costs for Iowans. The legislation has also drawn criticism from insurance and business groups, who argue the retroactive nature of the tax is unfair and will contribute to rising premiums.

Brandon Geib, a lobbyist representing Wellmark Blue Cross and Blue Shield, stated that his company’s HMO would be subject to a $24 million tax increase this year. He emphasized that the funds generated would be directed towards Medicaid, a program in which Wellmark does not participate. “I hear up here a lot how expensive health insurance rates are getting, how they keep going up,” Geib said. “It’s bills like this that do that.”

The bill also includes a transfer of $350 million from the state’s Taxpayer Relief Fund to offset revenue declines resulting from changes enacted through the federal One Considerable Beautiful Bill Act. An additional $89 million would be transferred from the state’s general fund to the Iowa Department of Health and Human Services specifically for Medicaid. These figures were updated on March 12th based on estimates from the Medicaid Forecasting Group, which now projects a $90.6 million deficit for Fiscal Year 2026.

Governor Reynolds has previously indicated support for addressing the Medicaid shortfall, stating that the tax increase was authorized by the One Big Beautiful Bill Act and would “help address” the financial challenges facing the program.

Following the House’s passage of the bill on March 19th, the tax rate is scheduled to decrease to 0.95% in October, slightly above the current level. The governor’s office has not yet announced a timeline for her decision on the legislation.