Iowa Passes Temporary HMO Tax Hike to Boost Medicaid Funding

The state legislature approved a 9-month premium tax increase on Medicaid and private HMOs to qualify for additional federal matching funds.

Mar. 25, 2026 at 8:28pm

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The Iowa legislature has passed a bill that will temporarily increase the state premium tax on companies managing the state's Medicaid program as well as private HMO providers from less than 1% to 3.5% for 9 months. This move is expected to generate an additional $355 million in federal Medicaid matching funds to address a deficit in the state's Medicaid program.

Why it matters

The tax hike is a strategic maneuver by Iowa lawmakers to draw down more federal Medicaid dollars, but critics argue the increased costs will likely be passed on to consumers already struggling with high health insurance premiums.

The details

The premium tax increase will be retroactive to January 1, 2026 and will revert back to less than 1% on October 1, 2026. Republican Senator Mark Costello, who sponsored the bill, says the additional federal funds are needed to address a deficit in Iowa's Medicaid program.

  • The premium tax increase will be retroactive to January 1, 2026.
  • The premium tax will revert back to less than 1% on October 1, 2026.

The players

Sen. Mark Costello

A Republican state senator from Imogene, Iowa who sponsored the bill to temporarily increase the premium tax on Medicaid and HMO providers.

Gov. Kim Reynolds

The Governor of Iowa who has indicated she will sign the premium tax increase bill into law.

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What they’re saying

“The plan is a strategic move expected to bring in an additional $355 million in matching federal funds to address a deficit in the state's Medicaid program.”

— Sen. Mark Costello, Republican state senator

“Insurance companies are likely to pass the tax increase on to customers at a time when many Iowans are already struggling to cover health insurance premiums.”

— Democratic lawmakers

What’s next

Gov. Kim Reynolds is expected to sign the premium tax increase bill into law in the coming days.

The takeaway

This temporary tax hike on Medicaid and HMO providers is a strategic move by Iowa lawmakers to draw down more federal Medicaid funding, but it raises concerns about the potential impact on consumers already facing high health insurance costs.