The only tax increase in Republicans’ expanded agenda for the Montana special legislative session would impose the state insurance-premium tax on two smaller health insurers, in the name of “equalization” of taxes.
The 2.75 percent tax – paid by Blue Cross and Blue Shield of Montana and other insurance giants, most of them for-profit companies – would be extended to nonprofit insurers PacificSource and the Montana Health Co-op.
“From our standpoint, this is an equalization move,” House Speaker Austin Knudsen, R-Culbertson, told MTN News. “Why does one insurer have to pay, and the other two don’t?”
The proposal would generate about $12 million to help fill the state’s $227 million budget hole – and, by 2020, reduce the tax to 2 percent for all companies.
PacificSource is opposing the move, saying it’s properly exempt as nonprofit. PacificSource and the Co-op also say they’d be passing any increase on to customers.
Jennifer Hensley, representing PacificSource, said Monday that Blue Cross of Montana is using the state’s budget crisis as an opportunity to lower its taxes. She noted that the company agreed to pay the premium tax in 2013, as a condition of state approval of its merger with Health Care Service Corp., a multistate, multibillion-dollar Blue Cross company based in Chicago.
“Right now, (Blue Cross) is counting on people’s memories to slip, and the speed of a special session, to make this decision, and calling it `equity,’” she said. “I see it as them lowering their taxes and us having a tax increase passed on to our members.”
Blue Cross spokesman John Doran said it’s a chance to generate some revenue for the state budget in the next two years – and lower the overall tax by 2020, for those who pay it now.
“I think the state is ready to find a way to fill the (state firefighting) fund, create some tax equity and, from a long-term standpoint, create a tax decrease for the majority of Montanans,” he told MTN News.
Montana Health Co-op President Larry Turney said the insurer doesn’t want any preferential treatment, but that rates for 2018 already are set, and can’t be adjusted. Any increase should wait until 2019, he said.
The bill is expected to be introduced Tuesday, which is the first day of a special legislative session to address a state budget deficit brought on by firefighting-cost overruns and less-than-expected tax revenue.
Gov. Steve Bullock, a Democrat, did not include the measure in his special-session agenda.
But legislative Republicans, who control majorities at the Legislature, included it among a half-dozen items in an expanded agenda, which they plan to make official on Tuesday.
Blue Cross is the dominant health insurer in Montana, with about 300,000 customers. In 2013, it merged with HCSC, which reported $30 billion in revenue last year and net income of $106 million.
PacificSource, headquartered in Oregon, has about 50,000 customers in Montana and annual revenue of $550 million. The Co-op, funded as part of the 2010 Affordable Care Act, has about 22,000 customers in Montana and annual revenue last year of $123 million. Both companies reported about $20 million in losses in 2016.
Doran said Blue Cross pays about $14 million in premium taxes a year in Montana.
Hensley estimated that PacificSource would pay $6 million to $7 million a year in premium tax in Montana, if the 2.75 percent tax is imposed on the company. The tax is paid on fully insured plans, but not for self-insured plans that the company may manage.
Doran said while Blue Cross pays the tax, the company and its parent still operate as a nonprofit, under company bylaws.
“This really is about tax equity,” he said.
Hensley, however, said there is “no way that Blue Cross, under HCSC, is a nonprofit,” noting that it agreed to pay the tax, like for-profit companies.