Iowa Senate approves HF 2739, a temporary HMO tax to fund Medicaid after heated floor debate

The Iowa Senate on March 24 passed House File 2739, approving a temporary increase in the health‑maintenance-organization (HMO) premium tax and a supplemental Medicaid appropriation after several hours of floor debate. Senator Costello (Mills) moved the bill and its conforming amendment; the Senate declared the measure passed by a constitutional majority and ordered it messaged following adoption.

Supporters said the bill will leverage state revenue to secure federal matching dollars and boost Medicaid provider payments. “Iowa HHS will invest this new revenue into the Medicaid program and will receive a federal match of roughly $355,000,000,” Senator Costello said, and said the measure would allow the state to reinvest “over $500,000,000 in Iowa Medicaid for provider reimbursement.” Costello said the proposal moves the existing premium tax into a new code chapter, renames it a health care related tax and implements a temporary increase to 3.5% (contingent on Centers for Medicare & Medicaid Services approval) from Jan. 1 through Sept. 30, 2026, reverting to a 0.95% rate thereafter.

Opponents argued the tax will be passed on to consumers and businesses. “This bill is a tax increase on Iowans. Full stop,” said Senator Donahue (Linn), adding insurers will file rate increases and raise premiums. Senator Petersen (Polk) estimated the change could raise costs by about $115 per person or about $500 for a family of four in a year and criticized the bill’s retroactive effective date and the pace of floor consideration.

The bill includes two divisions: Division 1 relocates and renames the premium tax, and Division 2 provides a supplemental appropriation. Costello described projected revenue impacts, saying the net increase is projected at about $154,700,000 across fiscal years 2027–28, that 82% of the revenue increase would be paid by managed care organizations and 18% by other HMOs, and that total Medicaid dollars earmarked between FY 2026 and FY 2028 would be roughly $188,100,000. He also said the bill would transfer $347,000,000 from the taxpayer relief fund to the state general fund upon enactment to cover federal tax‑law related revenue reductions.

Opponents repeated broader budget critiques: several senators said the majority party’s prior tax and spending choices produced significant deficits and cautioned against using premiums to fill budget gaps. Senator Drake (Woodbury) objected to how leadership brought the bill to the floor, saying leadership “broke the joint rules” to expedite consideration.

Senator Costello and other supporters said the tax is a policy tool other states use to secure federal matching funds and that Iowa’s ultimate, permanent rate (0.95%) would remain lower than some other states’ MCO rates; Costello argued the proposal would allow investments that benefit Medicaid enrollees and providers.

After final remarks and a roll‑call process, the chair announced HF 2739 had received a constitutional majority and passed the Senate; Senator Costello then asked to withdraw the companion Senate file, which was ordered. The Senate ordered the bill messaged to the governor.

What’s next: The bill was messaged following passage; its temporary higher rate is contingent on CMS approval and some provisions were described as retroactive to Jan. 1, 2026. If enacted, the state intends to use the revenue to increase Medicaid provider reimbursements and seek federal matching funds.