How Michigan's new budget impacts health insurance agents and their clients

We weren’t up at 3 am, but Michigan lawmakers were the first Friday in October as they finally passed the state's $75 billion budget for fiscal year 2025-26. While much of the coverage has focused on road funding and school spending, this budget contains several provisions that will directly impact us health insurance agents and the small businesses we serve.

As agents, we need to understand these changes not just for our own practices, but to better advise our clients who will be navigating new financial pressures in the coming year.

First, we'll cover the direct impacts on your agency. Then, we'll dive into what your clients are facing—the economic pressures influencing their benefits decisions and shaping your renewal conversations. Understanding both sections will position you as the trusted advisor your clients need.

Part 1: What's changing for your insurance business

Stronger support for insurance professionals

Let's start with the positive developments. Michigan lawmakers approved a budget increasing funding for the Department of Insurance and Financial Services (DIFS) by $785,000, bringing the department's total budget to $79.4 million for the 2025-2026 fiscal year.

This is a significant win. Before, the House proposed cutting DIFS funding by $5.2 million, which could have severely hindered the agency's ability to serve consumers and maintain market stability.

What this means for your agency

With enhanced funding, DIFS will be better positioned to do what it does best: process licenses, renewals, complaints, and support the 455,000 agents, companies, and financial institutions its regulates. The budget also includes an additional $330,000 for attorney general services, reflecting increased civil and criminal cases referred by the regulator. This funding boost means the regulatory infrastructure supporting our profession remains strong.

Stricter fraud enforcement: A double-edged sword

Alongside the budget, lawmakers are advancing legislation to strengthen insurance fraud penalties. The new measures include:

• Tiered penalty structures for different levels of fraud
• Expanded enforcement authority for DIFS under the Health Care False Claims Act
• Requirements for insurers to report suspected fraud

For agents operating with integrity, this isn’t a big deal. Stronger fraud enforcement protects our reputation and helps weed out bad actors making strange phone calls and targeted commercials.

However, be prepared for increased scrutiny on claims processes and documentation. The enhanced enforcement mechanisms mean compliance will be paramount. Make sure your have robust record-keeping systems and document all client interactions thoroughly. CoverageForOne for scopes, call recording for Medicare appointments, and CoverageForCompanies for small group can all be of help here.

Part 2: Understanding the economic pressures facing your clients

Now that we've covered what's changing for us, let's talk about what clients are dealing with. This is the information you need to have informed, strategic conversations during renewals and planning sessions. When you understand the financial pressures your clients face, you can position yourself as more than just an insurance agent—you become a trusted business advisor.

Small businesses face significant tax increases

Here's where things get complicated for small business in Michigan. The budget includes corporate income tax modifications that business organizations estimate will result in $2 billion in tax increases over the next five years.

Michigan is decoupling from some federal tax reforms as part of a plan to fund road improvements. While state officials emphasize they're protecting working families and avoiding cuts to essential programs, business leaders are sounding the alarm.

The Detroit Regional Chamber, Grand Rapids Chamber, Michigan Chamber of Commerce, Michigan Manufacturers Association, and Small Business Association of Michigan issued a joint statement calling the changes problematic, especially "in a time of growing uncertainty for Michigan companies."

Why this matters to the agent

Here's the critical detail: nearly 85% of corporate income tax payers are businesses with fewer than 100 employees, and 62% have fewer than 10 employees. This isn't just affecting large corporations—it's hitting the small businesses making up the majority of our client base.

What this means for renewal conversations: When small businesses face higher tax burdens, health insurance benefits are often one of the first line items they scrutinize. We need to be prepared for more price-sensitive clients during renewal season, and show up to the table with options to decrease costs for these owners. Even better, we can create a menu of options for our clients with supplemental benefits, often times at no cost to the employer.

Cannabis industry will cough up more profits

If you work with clients in Michigan's marijuana industry, you need to know about the new 24% wholesale tax on cannabis that was approved as part of the budget package. This is in addition to the already existing 10% excise tax on retail marijuana sales.

Industry advocates are protesting loudly, arguing this will give Michigan the second-highest cannabis tax rate in the country. They warn it will hurt businesses and raise customer prices. What this means for renewal conversations: Cannabis businesses will be facing substantial new tax burdens starting January 1. They may need to make difficult decisions about employee benefits to offset these costs. Be proactive in reaching out to these clients before their renewal dates, and check out our previous insights on the cannabis industry.

Medicaid budget changes

Cuts to the Department of Health and Human Services—over $7 billion—are attributed to federal spending cuts. But note that approximately $5 billion in Medicaid contingency funds weren’t included in the total budget calculation. So if these cuts do indeed go through, it will not be a surprise to the government, who will have to make some tough choices to determine how that $5 billion will be made up.

While the full impact of these changes isn't entirely clear yet, agents should monitor how Medicaid adjustments might affect:

• Dual-eligible populations who interact with both Medicaid and commercial insurance
• Individuals who were covered under Medicaid expansion who might shift to marketplace or employer plans
• Provider reimbursement rates that could impact network adequacy in commercial plans

These changes could create opportunities to help individuals transition from Medicaid to individual or employer group coverage, but they also require us to stay informed about eligibility changes and coverage options. Watch for clients who may need to add employees to their group plans as Medicaid eligibility shifts.

The bottom line

Michigan's 2025-26 budget creates a tale of two realities for health insurance agents. On one hand, we have stronger regulatory support and enhanced fraud enforcement that strengthens our craft. On the other hand, our small business clients are facing significant tax increases and economic uncertainty that will put pressure on their budgets—which puts the heat on us to help make ends meet.

As we head into renewal season and 2026 planning, use this information to have proactive conversations with your clients. Don't wait for them to come to you with concerns—reach out first, acknowledge the challenges they're facing, and show them you're prepared to help them navigate this new landscape.