- Associated Press - Wednesday, February 24, 2016

LANSING, Mich. (AP) - Michigan’s tax on health insurance would continue into 2020 under legislation approved Wednesday by the Legislature, the latest in a long-running series of moves to guarantee that the state still qualifies for federal Medicaid funding.

The final votes in the Republican-led Senate and House came despite objections from the politically influential state Chamber of Commerce, which has called the bill a “giant tax hike.” GOP Gov. Rick Snyder is expected to sign the measure, which he advocated last year partly as a way to lessen pressures in the state’s general fund when money is shifted to road spending in coming years.

The state’s 0.75 percent health insurance claims assessment, which is expected to rise to 1 percent in 2017 once another tax is disallowed by the federal government, is due to expire at the end of that year. It generates hundreds of millions of dollars annually and, if the revenue dries up, could lead to budget cuts if the tax is not extended.

“It’s been there, so I don’t think it’s a (tax) increase,” Senate Majority Leader Arlan Meekhof, R-West Olive, told reporters. He said continuing the tax would buy time for lawmakers to find a “long-term solution.”

A 1 percent broad-based tax on health claims took effect in 2012 after more narrowly tailored taxes on Medicaid managed care services came under federal scrutiny. Yearly revenue initially was capped at $400 million, and the tax was due to last just two years.

But revenue fell far short of projections from the state Treasury Department and legislative economists, putting Michigan’s federal matching dollars at risk.

In 2013 and 2014, legislators extended the tax four more years, lowered it to 0.75 percent and reinstated a 6 percent use tax on Medicaid health plans. Yet due to guidance from federal officials, the Snyder administration has made it clear that it will no longer collect the use tax starting in 2017, according to the nonpartisan Senate Fiscal Agency.

“We’re going to find a better solution, and I believe we can do that,” Meekhof said.

As initially passed by the House in December, the bill would have continued the health claims tax into 2025. But the Senate set sunset for July 2020 and approved the legislation 21-17, with 20 Republicans and one Democrat in favor. Ten Democrats and seven Republicans opposed it.

The House quickly OK’d the bill, 77-25.

Senate Minority Leader Jim Ananich, D-Flint, said the votes were a follow-up to the majority GOP’s “failed” road-funding deal in the fall, when Republicans voted to shift increasingly more general funds toward the transportation budget and to raise fuel taxes and vehicle registration fees. At the time, Democrats opposed diverting up to $600 million a year to roads.

“We wanted a full and complete fix,” Ananich said of the health tax legislation. When the road-spending package was enacted, he said, Republicans “knew they were going to have to come back and raise taxes. They didn’t want to do it then, because they didn’t want to keep taking tax vote after tax vote. They wanted to spread it out so people wouldn’t notice.”

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Online:

House Bill 5105: https://1.usa.gov/21rDqz0

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Follow David Eggert on Twitter at https://twitter.com/DavidEggert00 . His work can be found at https://bigstory.ap.org/author/david-eggert

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