Missouri legislators trade taxes for tuition

Thursday, April 15, 2010 | 5:18 p.m. CDT

JEFFERSON CITY — Managed-care health insurers could face a tax increase as part of a plan to preserve an agreement that freezes tuition at public colleges and universities.

The tax plan could net about $20 million for the state, which legislators used as a justification this week for lessening a proposed funding cut to higher education institutions.

An agreement between Gov. Jay Nixon and colleges and universities would keep tuition flat for the 2010-11 academic year in exchange for not cutting the schools' budgets by more than $50 million. A Senate panel had proposed to make a nearly $65 million cut, which would have invalidated the tuition-freeze deal.

But the full Senate reduced that cut to $50 million Wednesday, assuming the additional revenue from the proposed health insurer tax would more than cover the difference.

Nixon's budget director, Linda Luebbering, said Thursday that the plan is endorsed by the governor and would require six Medicaid-managed care companies to start paying an existing state tax on premiums from which they are currently exempt. The companies could then add the tax into the expenses for which they get Medicaid reimbursements from the state and federal government. That would draw more federal Medicaid funds into Missouri.

Most Missouri insurance companies currently pay a 2 percent tax on their premium sales instead of income taxes. In 2008, those taxes generated about $230 million in general state revenues, according to the Department of Insurance, Financial Institutions and Professional Registration.

"It is a tax increase," said Luebbering, who said insurers were fine with the plan. She said California has a similar tax and that Pennsylvania had looked at the idea.

But the Missouri Insurance Coalition said it still was trying to understand Thursday what the Legislature was seeking to do.

"We weren't consulted," said Brent Butler, government affairs director for the Missouri Insurance Coalition.

Senate Appropriations Committee Chairman Rob Mayer, R-Dexter, urged senators on Wednesday to reverse the $14.8 million in additional higher education cuts made by his committee. Mayer, R-Dexter, said the money to restore that would come through Nixon's tax plan.

But some lawmakers said Thursday they do not like that idea. Republican lawmakers who control the House and Senate have regularly spurned tax increases, and Nixon, a Democrat, has also said he does not want to increase taxes.

Sen. Brad Lager said he and other lawmakers who have disagreed with tax increases likely would oppose the separate legislation needed to implement the new tax for health insurance providers.

"It's a tax increase on insurance companies," said Lager, R-Savannah. "If they pay more tomorrow than they pay today, it's a tax increase."

The $50 million cut to colleges and universities — and thus the tuition freeze, too — is essentially locked into next year's budget, because it is contained in both the House and Senate versions.

But the legislation authorizing the tax plan has not yet passed either chamber. If it fails to pass, lawmakers might have to make cuts elsewhere in the budget to afford the higher education funding plan, or they could tap into federal stimulus money that Nixon had proposed to save for use in the 2012 budget.

State revenues are down more than 13 percent this year, and the state's economic forecasters do not expect next year will be much better. The governor proposed a $23.86 billion operating budget in January but later said that needed to be trimmed by about $500 million.

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