What Is House File 2739?
House File 2739 is a bill currently in the Ways and Means Committee. However, it directly affects the Health and Human Services budget. State Rep. Ann Meyer (R-Fort Dodge) introduced this column to address constituent questions about the bill. Understanding the background helps Iowa residents grasp what is truly at stake.
Why Iowa’s Medicaid Spending Keeps Rising
Iowa’s Medicaid program now consumes a far larger share of the state budget than it once did. In the 1990s, Medicaid accounted for roughly 7 percent of total state spending. Today, that figure has climbed to 22 percent. Furthermore, the state recently lost access to enhanced federal Medicaid funding that existed because of COVID-19. That boosted federal match ended in late 2023. As a result, Iowa now bears those costs entirely on its own. Projections show program costs will grow by more than $1 billion before the end of 2031.
How Many Iowans Rely on Medicaid?
Enrollment Has Nearly Tripled Since 1998
The growth in Medicaid enrollment tells a striking story. Back in 1998, just over 200,000 Iowans — about one in every 15 residents — used Medicaid. Today, that number has risen to 600,000 Iowans enrolled in Medicaid or the Iowa Health and Wellness Plan. That means roughly one in five Iowans now receives health coverage through the program. Moreover, many of these residents have significant healthcare needs, which drives costs even higher.
Why Health Insurance Costs Keep Climbing
Affordability Remains the Core Problem
The rising price of private health insurance is a primary driver of Medicaid enrollment growth. Many Iowans simply cannot afford to buy coverage on their own. Additionally, many small employers cannot absorb the rates that insurance companies charge. Beyond affordability, another issue exists: some Iowans find that available plans do not actually cover their specific medical needs. Consequently, they turn to Medicaid as their only viable option.
Are Insurance Companies Really Struggling?
Wellmark’s Profits Tell a Different Story
Despite high premium rates, Iowa’s insurance industry is not hurting financially. A look at Wellmark — Iowa’s largest insurer — illustrates this clearly. Over the past five years, the company reported the following net income figures to the Iowa Insurance Commissioner:
- 2021: $143,344,614
- 2022: $82,368,021
- 2023: $216,533,140
- 2024: $181,019,246
- 2025: $176,229,257
Together, those figures represent $799.5 million in profits over five years. Notably, in 2023, the state legislature actually lowered the tax insurance companies pay — from a higher rate down to just 0.95 percent of collected premiums. Even so, Wellmark raised HMO plan premiums by 14.73 percent that same year.
How the Provider Tax Works
Federal Matching Funds Are Key
The three managed care organizations (MCOs) that run Iowa’s Medicaid program currently pay a “provider tax.” The federal government then matches that tax to help fund Medicaid statewide. However, some states abused this mechanism. Therefore, Congress stepped in last summer and capped provider tax rates at 3.5 percent. States already below that threshold — including Iowa, at just 0.95 percent — had their rates frozen at existing levels.
What the New MCO Tax Proposal Means
Iowa Has a Limited Window to Act
Because Iowa’s MCO tax rate sits well below the national cap, the federal government allows the state to raise it — but only until October. This temporary window gives Iowa access to an additional $124.3 million in federal Medicaid funding. That revenue could meaningfully offset the budget pressure caused by rising enrollment and the loss of COVID-era federal support.
Who Pays — And Who Doesn’t
Broader Insurer Coverage Is Required
Federal rules require that provider taxes apply equally across all state-regulated health insurance companies — not just Medicaid MCOs. Accordingly, other Iowa insurers would also face the tax. Their total expected contribution is $27.7 million. Still, there are important protections in place for consumers.
Your Rates Will Not Increase
Insurance companies have already locked in their rates for this year. Iowa-regulated plans assessed this tax cannot raise future premiums to recover it. Therefore, individual policyholders will not see higher bills because of this proposal.
Large Employer Plans Are Exempt
State governments cannot tax self-funded health plans, which are common among large employers. As a result, employees covered through large-employer plans will see no impact from this proposal whatsoever.
