Plan directs insurance tax to trust fund

Taxes the state collects on health-insurance premiums sold through the private option program would be transferred to the program’s trust fund under a proposal adopted Tuesday by the Legislature’s Joint Budget Committee.

In a voice vote with a few lawmakers voicing their dissent, the committee voted to add an amendment by Sen. Johnny Key, R-Mountain Home, to the committee’s House Bill 1053, which is an appropriation for the state Insurance Department in the fiscal year starting July 1.

State Insurance Commissioner Jay Bradford said the state charges a 2.5 percent tax on all insurance premiums and insurance companies remit the taxes to the state.

Committee Co-Chairman Sen. Larry Teague, D-Nashville, told his colleagues that,“It is not a new tax. It is not an Obamacare tax.”

Key said the insurance-premium taxes collected on policies purchased under the state’s private option weren’t included in Democratic Gov. Mike Beebe’s proposed $5 billion budget for fiscal 2015, so “any extra revenue that comes from this would just be excess general revenue.”

Key said his proposed amendment “would capture the premium tax from these policies and direct them” to the private option’s trust fund that was created under state law last year, and “put it aside for future costs of this program.”

“It addresses one of the questions in some way of how are we going to pay for this in the future. We are going to grab this and set it aside for this purpose,” he said.

The 2010 federal health-care overhaul required states to expand Medicaid to cover adults with incomes of up to 138 percent of the poverty level, but the expansion became optional after the U.S. Supreme Court ruled in 2012 that the mandate was unconstitutional.

In Arkansas, the expansion made an estimated 250,000 people - those with incomes of up to $15,860 for an individual or $32,500 for a family of four - eligible for insurance coverage.

Under the private option, most of those who enroll receive coverage in a private plan on Arkansas’ health-insurance exchange, with the Medicaid program using federal dollars to pay the premiums. The health-care law also created the insurance exchanges.

About 10 percent of enrollees - those who are found to have exceptional health needs - are assigned to the traditional Medicaid program.

Key said the state Department of Finance and Administration gave him information indicating that the state could collect anywhere from $34 million to $64.8 million in insurance-premium taxes on private-option policies.

Tim Leathers, deputy director of the finance department, said the department received figures from a consultant hired by the Insurance Department based on various assumptions for full implementation and “didn’t have a timeline for when the money would start and that’s why it’s not built in the [proposed] budget.”

The consultant estimated the state could collect $23 million or more a year when the private option is fully implemented, which “may be down the line some years,” he said.

Sen. Jim Hendren, R-Sulphur Springs, asked, “So is it $23 [million] or $34 [million] or $67 [million]?”

Leathers said state officials are unsure.

“That range on the lower end at full implementation was around $23 million or so, but it could be higher,” he said.

“The high end … was around $50 [million] or $60 million at fully implementation,” Leathers said.

Bradford told lawmakers that the state could use these funds to help pay its portion of the costs for the state-run exchange in the future.

Rep. John Burris, R-Harrison, who is an architect of the private option, said Key’s proposal would spend the money appropriately.

“There are really only two options as a result of the premium tax being collected. It either disappears into general revenue and grows government somewhere else or we lock it away to pay for the state’s eventual match for the private option, which is what the law requires,” he said.

The federal government will pay the full cost of covering the newly eligible enrollees until 2017, when states will begin paying 5 percent of the cost. The state’s share will then rise each year until it reaches 10 percent in 2020.