EXEMPT HMOS FROM

INSURANCE COMPANY PREMIUMS TAX

House Bill 4950 reported from committee w/o amendment

Sponsor:  Rep. Hank Vaupel

House Bill 5047 reported from committee w/o amendment

Sponsor: Rep. Hank Vaupel

Committee:  Tax Policy                                                 (Enacted as Public Acts 31 and 32 of 2018)

Complete to 10-13-17

SUMMARY:

HB 4950 would amend the Income Tax Act to exempt health maintenance organizations (HMOs) from the insurance company gross premiums tax. The exemption would apply to health maintenance organizations authorized in accordance with state statute.

HB 5047 would amend the act's definition of "insurance company" to exclude HMOs.

Both bills would be retroactive and effective for tax years that begin on and after January 1, 2016.

The bills are tie-barred, meaning that neither could take effect unless both are enacted into law.

MCL 206.635 and 206.607

FISCAL IMPACT:

The bill would have no fiscal impact because it would simply codify Treasury's current interpretation that HMOs are subject to the 6% corporate income tax as opposed to the 1.25% tax on gross premiums.

BRIEF BACKGROUND:

According to a notice from the Department of Treasury, the recent enactment of 2016 PA 276 created uncertainty regarding the tax treatment of HMOs under the Corporate Income Tax (CIT). Prior to enactment, HMOs were generally subject to the 6% corporate income tax under the CIT. Only "authorized insurers" are subject to the 1.25% tax on gross premiums under the CIT. PA 276, among other changes, classified HMOs as "insurers" under the Insurance Code. This created uncertainty as to whether HMOs, as "insurers", were also "authorized insurers" for purposes of the CIT.

According to the Department of Insurance and Financial Services, HMOs are not "authorized insurers." As such, they are not subject to the gross premiums tax and are subject to the CIT's corporate income tax, to the extent that HMOs are otherwise required to pay the CIT.[1]

DISCUSSION:

Proponents note that the bills will codify the current tax treatment of HMOs, and ensure that there are no future tax uncertainties regarding HMOs in this manner.

No individuals or groups expressed opposition to the bills. 

POSITIONS:

Representatives of the following organizations testified in support of HB 4950:

·         Michigan Association of Health Plans (9-27-17)

Representatives of the following organizations indicated support of HB 4950:

·         Physicians Health Plan (9-20-17)

·         Michigan Chamber of Commerce (9-20-17)

·         Michigan Complete Health (9-20-17)

·         McLaren Health (9-20-17)

·         Paramount Health Care (9-20-17)

·         United Health Care (9-20-17)

·         Health Alliance Plan (9-20-17)

·         America’s Health Insurance Plans (9-20-17, 10-4-17)

·         Meridian Health Plan (9-20-17)

·         Michigan Department of Treasury (9-20-17)

·         Aetna (10-4-17)

·         Molina Healthcare of Michigan (10-4-17)

Representatives of the following organizations indicated support of HB 5047:

·         Michigan Department of Treasury (10-4-17)

·         Molina Healthcare of Michigan (10-4-17)

·         United health Group (10-4-17)

·         Michigan Complete Health (10-4-17)

·         Michigan Association of Health Plans (10-4-17)

                                                                                        Legislative Analyst:   Patrick Morris

                                                                                                Fiscal Analyst:   Jim Stansell

■ This analysis was prepared by nonpartisan House Fiscal Agency staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.

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