The Iowa House passed a bill Thursday retroactively bumping the premium tax rate for health maintenance organizations to make up for a Medicaid budget shortfall — a move Democrats and insurers said would raise health care costs for all Iowans but Republicans argued was needed to draw down federal funding.
House File 2739, approved on a narrow 53-40 vote, would increase the tax on HMOs from 0.925% to 3.5% from Jan. 1 and Sept. 30, 2026. In October, the HMO premium tax would drop to 0.95% after the temporary spike, slightly above the current rate.
The bill, as amended, would transfer nearly $350 million from the state’s Taxpayer Relief Fund to account for state revenue declines caused by changes made through the federal “One Big Beautiful Bill” Act. Another $89 million would transfer from the state’s general fund to the Iowa Department of Health and Human Services for the state’s Medicaid program.
These figures were increased from the original bill based on updated estimates made by the Medicaid Forecasting Group on March 12, which found Iowa Medicaid is expected to face a $90.6 million deficit in Fiscal Year 2026.
Lobbyists representing insurance companies, speaking during subcommittee meetings and a public hearing on the measure, said the tax increase on HMOs, a type of Medicaid Advantage plan offered by private companies, will lead to higher premium costs for Iowans.
Scott Sundstrom, a lobbyist for Wellmark, Inc., said at the public hearing Wellmark’s HMO would see a retroactive tax increase of $24.2 million in 2026 if the bill passes, which will lead to an estimated increased cost of $115 per person or $500 for a family of four this year for people receiving health coverage through Wellmark’s HMO.
During floor debate, Rep. Shannon Lundgren, R-Peosta, the bill’s floor manager, said insurance companies have been deliberately “scaring” Iowans in discussions on this tax increase. She said while insurers like Wellmark have said this tax increase will lead to increased health insurance costs for Iowans, she said health insurance premiums still rose in years when the Iowa Legislature lowered premium taxes.
“After our 2023 premium tax cuts, Iowa’s health insurers taxes dropped, yet their customers still faced increased premiums by an average of 15%,” Lundgren said. “In 2025 when we cut their taxes, your insurance premiums increased. Let that sink in.”
She said Wellmark Blue Cross and Blue Shield generated $8.7 billion in state revenue, reported over $357 million in profits, and ended 2025 with an ending balance of $3.17 billion in surplus.
“Not only have the health insurers’ profits been soaring, they even encouraged a call to action, scaring your constituents into thinking that this body was going to raise your insurance premiums. ‘If you raise our taxes, we’re going to raise your insurance premiums,’” Lundgren said. “How does that even make sense when we’ve actually lowered their taxes and that premium still went up?”
Lundgren also said Iowa lawmakers “don’t control the premiums of insurance companies here in the state of Iowa.”
“When health insurers decide to raise those premiums, that’s a business decision,” Lundgren said. “And you should ask yourself, when was the last time you saw a decrease in premiums? Big insurance companies lobby D.C. to protect a multi-billion dollar industry while every hard-working American pays the price. Ask yourself, who benefits? Whose revenue keeps climbing while states scrambled to fund health care for the most vulnerable?”
But Democrats argued during floor debate the increase in premiums that insurers told lawmakers will come due to the tax increase is not something Iowa families can afford. Rep. Austin Baeth, D-Des Moines, asked Republicans supporting the bill to “not insult the intelligence of the people that we serve” with the argument that the measure was a tax on insurance companies instead of “everyday Iowans.”
“We know that when companies have to pay higher taxes, they pass on that expense to their customers,” Baeth said. “That’s how business works. … Now, when the price of that health insurance goes up, one of two things happens. Either Iowans will strain to pay for that premium with their already-stretched budget, or they’ll no longer be able to afford insurance at all. ”
He said Republicans could pursue other means of addressing the Medicaid deficit that will not increase health care insurance costs.
“Let’s be really clear about why we’re debating this health care tax today. Republican politicians on both the federal and state level decided to hand out massive tax cuts to the millionaire and billionaire class, and are now looking for ways to fill that budgetary hole,” Baeth said. “So they’re coming for you and your health care, and taxing that. There are other ways to get tax revenue, folks. You can start taxing the millionaires and billionaires again. You can start taxing cigarettes and actually help the health of Iowans by reducing lung cancer rates. But instead, this legislation goes after everyday Iowans and especially the most vulnerable.”
Democrats propose plane sale, premium freeze
House Democrats introduced multiple amendments to the proposal, all of which were rejected. The proposals included removing the tax change component of the bill while keeping the funding transfers, as well as language to subsidize coverage for Iowans receiving health care insurance through the Affordable Care Act marketplace that saw a price spike from the expiration of premium tax credits earlier in 2026 and requiring the state sell an Iowa State Patrol airplane purchased using COVID-19 relief funds that was used by Gov. Kim Reynolds for executive travel.
Democrats also introduced an amendment to freeze premiums from 2027 through 2032, stating health insurers could not increase total premiums “participating in a health benefits plan offered by the health carrier for policies, contracts or plans delivered, issued for delivery, continued or renewed in the state.”
Lundgren shared a letter from Wellmark that stated “Wellmark Blue Cross and Blue Shield would be forced to withdraw from all lines of insurance in Iowa” if the amendment was adopted, which would result in nearly 1.6 million Iowans losing health coverage.
“Virtually any business that would be prohibited by law from raising prices for five years could not survive,” the letter stated. “This is especially true for a business that finances the high and rapidly increasing costs of health care.”
Lundgren said though lobbyists representing insurance companies spoke in opposition to the bill at several meetings, “we did not receive a letter like that from (Wellmark) Blue Cross Blue Shield like we did on your amendment today.” But Democrats said Republicans, by voting against the measure, proved they understood the tax increase will result in premiums increasing for Iowans.
Democrats also said the bill represents a “one-time” funding source, leaving Iowa Medicaid in a deficit for future years with no solution. The state Medicaid program is estimated to face a $167.6 million deficit in FY 2027, according to the Medicaid Forecasting Group, and Rep. Gary Mohr, R-Bettendorf, said during Appropriations Committee meetings on the bill lawmakers are expecting to see a “$600 million shortfall” in state Medicaid costs over the next five to seven years.
Rep. Megan Srinivas, D-Des Moines, asked Rep. Ann Meyer, R-Fort Dodge, who ran the bill through the Appropriations Committee process, how Republicans plan to cover expected Medicaid deficits in the future. Meyer said “we will use general fund dollars” to cover the deficit in the future, saying the state’s “funds are full.”
Srinivas said the discussion shows the state does not have a plan to cover Medicaid costs in the future and will have to make other changes, which may include future tax increases in the future to cover the expected continued deficits.
“It sounds like we’re in a growing deficit, and we have no plan to cover those funds,” Srinivas said. “So the claim that this is a one-time coverage, a one time new tax, seems quite absurd at this point. It sounds like, just based on our conversation today, that we’re going to have to have to revisit this, and this one time, tax is going to continue to be a tax that goes on the backs of Iowans.”
Tax increase aimed at drawing down federal money
Lundgren said if the measure is not adopted, Iowa will lose access to $124 million in available federal funds.
“What’s important to know here today is that if we don’t do this slight increase for a short, nine-month period of time, we lose federal funds,” Lundgren said. “And why should those funds go to other states when they could be supporting Iowans?”
Nine Republicans voted against the bill. The measure moves to the Senate, where it is eligible for debate as the companion bill, Senate File 2464, was approved by the Senate Ways and Means Committee earlier in March.
Speaking with reporters Thursday, Senate Majority Leader Mike Klimesh said there are conversations ongoing about potential changes to the measure increasing taxes on HMOs that could leave tax increases on Managed Care Organizations (MCOs), the entities overseeing Iowa’s Medicaid system, in place.
“Every state is encountering Medicaid issues, Medicaid shortfalls, and the federal government makes this opportunity available to us, so it’s important for us to take advantage of that, while we can, to draw down those additional federal dollars on the MCO side,” Klimesh said. “And the conversation on the HMO side is ongoing. … We want to be aware of the potential for, you know, cost increases to private health insurance folks and the payers, but the end of the day, you know, for us to look at $300 million shortfall we have in Medicaid, this is an important lever for us to pull.”