HB 2626
In CommitteeHouse
Health insurance premium tax
Increasing the insurance premium tax on certain health insurance providers.
This status may be delayed. See Action History below for the latest updates.
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 increases the state’s health insurance premium tax from 2% to 3% for most health insurers and adds a new 1% tax on disability and group stop-loss insurers, beginning in 2027 and 2028, respectively. It also tightens prepayment rules and clarifies tax exemptions and local tax preemption.
- Raises the health insurance premium tax from 2% to 3% for HMOs, health service contractors, and certified health plans, effective for premiums collected in 2027 and later.
- Adds a new 1% premium tax on premiums collected by disability insurers and group stop-loss insurers, effective for premiums collected in 2028 and later.
- Requires quarterly prepayments of the tax (45% by June 15, 25% by September 15, 25% by December 15), based on prior-year obligations adjusted for the new rate.
- Maintains existing exemptions for federal programs like Medicare, Washington’s Basic Health Plan, and certain dental and optometry services under specific conditions.
- Bars counties and cities from imposing local taxes on health insurance premiums, but preserves their ability to tax direct health care services delivered by providers.
- Requires self-funded multi-employer welfare arrangements to seek federal legal clearance before paying the tax, or deposit payments into an interest-bearing escrow account if legality is unresolved.
Who is affected
- Health insurers (HMOs, health service contractors, certified health plans) — Health insurance companies that sell individual, family, small group, or large group health plans (including HMOs, health service contractors, and certified health plans) will pay a higher tax—rising from 2% to 3%—on premiums and prepayments they collect, starting in 2027.
- Self-funded multi-employer welfare arrangements — Businesses that offer self-funded health plans to employees through multi-employer arrangements may face new or adjusted tax obligations, depending on federal preemption rules; they must also make quarterly prepayments.
- Disability and group stop-loss insurers — Disability insurers and insurers selling group stop-loss insurance will begin paying a new 1% premium tax on related health-related premiums starting in 2028.
- State and local governments — State and local governments may see increased state revenue, but local governments lose the ability to impose local taxes on health insurance premiums (though they can still tax direct health care delivery).
Pro/Con Analysis
Potential Benefits (5)
The $120M–$150M in new state revenue will be deposited in the general fund, supporting core public services including emergency response, behavioral health, and substance use treatment — services that directly impact community safety and stability.
Public SafetyPeopleRef: Fiscal Impact summary & Sec. 1(5)(a)Revenue from exchange plans is directed to the Health Benefit Exchange Account, supporting subsidies and plan administration for low- and moderate-income enrollees — helping maintain affordability and access under Washington’s ACA marketplace.
HealthcarePeopleRef: Sec. 1(5)(b)Maintaining exemptions for Medicare and Washington’s Basic Health Plan ensures federal and subsidized state programs remain cost-competitive, protecting vulnerable populations (seniors, low-income residents) from tax-driven premium inflation.
HealthcarePeopleRef: Sec. 1(6)(a)-(b)Preserving local governments’ authority to tax direct health care delivery (e.g., clinic services, provider billing) allows continued local investment in community health infrastructure despite premium tax preemption.
Local GovernmentLean peopleRef: Sec. 1(7)The commissioner’s discretion to approve reduced prepayment amounts for good cause provides flexibility for insurers facing temporary financial stress, potentially reducing insolvency risk and promoting market stability.
FinancialLean peopleRef: Sec. 1(4) & Sec. 2(3)
Potential Concerns (5)
The 50% increase in health insurance premium tax (from 2% to 3%) will likely be passed through to consumers in the form of higher premiums, as insurers operate in a competitive but highly regulated market where cost shifts to enrollees are common and well-documented in prior tax hikes.
FinancialIndustryRef: Sec. 1(2), effective 2027The new 1% tax on disability and group stop-loss insurers will likely increase premiums for those products, disproportionately affecting small and medium employers who purchase stop-loss coverage to manage self-funded plan risk — a group that typically has limited bargaining power to absorb cost increases.
FinancialIndustryRef: Sec. 2(2)(a)-(b), effective 2028Mandating quarterly prepayments (45%/25%/25%) increases cash flow pressure on insurers, especially smaller or financially strained ones, potentially reducing liquidity and increasing borrowing costs — which may indirectly raise premiums or reduce service investment.
FinancialIndustryRef: Sec. 1(3) & Sec. 2(3)Self-funded multi-employer welfare arrangements face administrative complexity and legal uncertainty due to ERISA preemption concerns, requiring legal consultation and escrow management — costs that may be passed to participating small businesses and their employees.
Business & EmploymentLean industryRef: Sec. 1(6)(d) & Sec. 1(8)State preemption of local health insurance premium taxes reduces potential local revenue for counties and cities, limiting their ability to fund local health infrastructure or public health initiatives — though direct provider taxes remain allowed.
Local GovernmentLean peopleRef: Sec. 1(7)
Who Is Most Affected
Low- and middle-income households purchasing individual or small-group health plans may face higher premiums due to insurer pass-through of the 3% tax increase, reducing disposable income and potentially increasing unaffordability for those near subsidy cliffs.
Small and medium employers offering self-funded health plans may face higher administrative and compliance costs, and potentially higher stop-loss premiums due to the new 1% tax — possibly discouraging self-funding or increasing employee premiums.
Health insurers (especially HMOs and health service contractors) will face higher tax liability and cash flow demands from quarterly prepayments, squeezing margins and potentially reducing investment in care coordination or community health programs.
State and local governments gain new general fund revenue ($120M–$150M) to support public services, but local governments lose local premium tax revenue — though they retain authority to tax provider services, mitigating some loss.
Self-funded multi-employer welfare arrangements face legal uncertainty and escrow requirements due to ERISA preemption concerns, increasing legal and administrative costs for plan sponsors — which may be passed to participating employers and workers.