HF2739: HMO Taxation & HHS Supplemental Appropriations

Eliminates the current premium tax on HMOs and establishes a new health care-related tax on taxable funds of HMOs, with revised rates and definitions. It removes HMOs from the list of entities subject to the insurance premium tax, and creates a new Code chapter governing their taxation. The bill also enables a substantial one-time transfer from the taxpayer relief fund to the general fund, in response to federal tax law changes, and adjusts the calculation of the state general fund expenditure limitation accordingly. Additionally, it provides a supplemental appropriation to the Department of Health and Human Services for the medical assistance program and modifies rules regarding credits for assessments paid by insurers and HMOs. Appropriations and tax changes are contingent upon federal approval, with some provisions applying retroactively to January 1, 2026.

Key Points & Impacts

• Eliminates the premium tax on HMOs under Code section 432.1 and instead imposes a new health care-related tax under newly created Code chapter 432B.

• Defines 'taxable funds' for HMOs as payments received for health care services and payments made to providers and certain insurers, with specific federal exclusions.

• Sets the health care-related tax rates for HMOs: 3.5% for Jan 1–Sep 30, 2026; 0.95% for Oct 1–Dec 31, 2026; and 0.95% for subsequent years.

• Establishes new tax payment and prepayment schedules for HMOs, including special deadlines for the first year, and provides for credits and cash refunds under certain conditions.

• Repeals Section 432.1B and removes HMOs from the premium tax structure, moving them to the new tax regime.

• Allows insurers and HMOs to offset certain assessments against either premium or health care-related tax liabilities, and clarifies treatment for entities ceasing business.

• Authorizes a $296.2 million transfer from the taxpayer relief fund to the general fund in response to federal tax changes, and adjusts the state expenditure limitation to include this amount.

• Appropriates $70.3 million from the general fund to the Department of Health and Human Services for medical assistance reimbursements, with funds remaining available for an additional fiscal year if unspent.