EHB 2487
SignedHouse
Insurer taxes
Concerning taxes imposed on insurers operating within the state.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill closes a tax loophole that allowed companies like pharmacy benefit managers to avoid paying business and occupation (B&O) tax on money received from insurers—even though they don’t collect premiums or pay premium taxes—by tightening the exemption to apply only to insurers that actually pay premium taxes. It also consolidates and clarifies existing exemptions and applies the changes retroactively to 2019.
- Revises the business and occupation (B&O) tax exemption for insurers to apply only when the same insurer that receives premiums also pays insurance premium taxes to the state—closing a loophole that allowed non-insurers (like pharmacy benefit managers) to claim the exemption.
- Consolidates the previous exemptions in RCW 82.04.320 and RCW 82.04.322 into a single, clearer exemption in RCW 82.04.320.
- Repeals the old RCW 82.04.322, which provided a separate exemption for health maintenance organizations (HMOs) and similar entities.
- Clarifies that the exemption applies only to gross premiums received by insurers that paid premium taxes under chapters 48.14 or 48.15 RCW—or to exempt captive insurers meeting specific criteria.
- Applies retroactively to tax periods beginning on or after October 2, 2019, meaning businesses that claimed the exemption during that time may owe back taxes if they did not meet the new criteria.
Who is affected
- Insurers — Insurance companies that collect premiums and pay premium taxes in Washington; they retain the exemption from B&O tax on those premiums, but only if they actually paid the premium tax.
- Pharmacy benefit managers and third-party administrators — Pharmacy benefit managers (PBMs) and similar third-party administrators that previously claimed the exemption on payments received from insurers—even though they don’t collect premiums or pay premium taxes—may now owe back taxes if they claimed the exemption after October 2, 2019.
- Captive insurers — Captive insurers (often used by large employers or associations to self-insure), especially those affiliated with public universities, which may qualify for the exemption under specific conditions.
- State of Washington (fiscal impact) — The state’s general fund, which could gain additional revenue if businesses that improperly claimed the exemption are required to pay back taxes.
Pro/Con Analysis
Potential Benefits (3)
The $100–$150 million in new state revenue over the biennium can be directed toward essential public services—including education, healthcare, and public safety—benefiting communities that rely on those programs, especially in underserved areas.
Public SafetyPeopleRef: Fiscal Impact Summary, Sec. 4Closing the loophole restores fairness in the tax system by preventing non-insurers (e.g., PBMs) from avoiding state taxes that insurers actually pay, reinforcing the principle that tax exemptions should apply only to entities that both receive premiums *and* pay premium taxes—aligning with legislative intent and constitutional fairness.
Rights & LibertiesPeopleRef: Sec. 1(2), Sec. 1(4), Sec. 2(1)Leveling the playing field by eliminating tax arbitrage opportunities for PBMs may encourage more insurers to operate directly in Washington rather than relying on third-party administrators, potentially increasing accountability and consumer protection in the insurance market.
Business & EmploymentPeopleRef: Sec. 1(6), Sec. 2(2), Sec. 2(4)
Potential Concerns (4)
Pharmacy benefit managers (PBMs) and similar third-party administrators that previously claimed the B&O tax exemption may face significant back-tax liability—potentially tens of millions of dollars—for periods since October 2019, straining cash flow and threatening solvency for some mid-sized or undercapitalized firms.
FinancialPeopleRef: Sec. 2(1), Sec. 4Smaller PBMs and third-party administrators may reduce services, cut jobs, or exit the Washington market entirely in response to unexpected tax liability, potentially reducing competition and choice for consumers and employers relying on these firms for prescription drug management.
Business & EmploymentPeopleRef: Sec. 2(3), Sec. 4Captive insurers—especially those affiliated with small public universities or local government entities—may face compliance burdens or unexpected tax bills if they fail to meet the narrow criteria for exemption, despite having previously relied on prior statutory language and DOR guidance.
Business & EmploymentLean peopleRef: Sec. 2(4), Sec. 4The retroactive application to 2019 means businesses must refile returns and potentially pay penalties and interest on taxes they reasonably believed were exempt under prior DOR guidance and court interpretation, creating unfair hardship for firms that acted in good faith.
FinancialPeopleRef: Sec. 4
Who Is Most Affected
PBMs and third-party administrators that previously claimed the exemption may face large back-tax liabilities, especially if they operated under reliance on prior DOR guidance or court interpretation. Many are for-profit, for-hire entities serving large employers and insurers—so while the firms themselves may be harmed, their clients (e.g., employers, insurers) may benefit from reduced market distortion.
Insurers that collect premiums and pay premium taxes retain the exemption and benefit from a clarified, fairer tax framework. They may also gain competitive advantage over non-insurer intermediaries that previously exploited the loophole.
Captive insurers—especially those affiliated with public universities—may face compliance costs or unexpected liability if they do not meet the narrow exemption criteria. However, those that qualify retain the exemption and benefit from statutory clarity.
The state gains $100–$150 million in revenue over two years, which can fund education, healthcare, and public safety—services disproportionately used by low- and middle-income Washingtonians. This improves fiscal stability and service delivery.
Washington residents benefit indirectly from restored tax fairness and increased public funding. However, if PBMs reduce services or exit the market, some may face higher drug administration costs or reduced access to specialized pharmacy services.