I think the UI both historically and presently has done a crap job of explaining how it continues to benefit Iowans, but I have already been stretching the no politics rule so I am not going to go any further into my observations on that.
This bill sucks for a number of reasons but you pointed out one I didn't mention previously that I think is really important - it doesn't necessarily do what the authors want it to do. Medical and Dental school admissions are significantly different from what I had to deal with, but I think sharing my experience might highlight the problem with the legislation. When I was accepted to PhD I was given a TA position for an online class. I had an apartment in Florida and paid bills there for the year before I enrolled (using my the paycheck I was given from the school I was enrolling in). The week before classes started I was able to use my TA paychecks and sparse utility bills to get re-classified as an in-state resident. The requirement for getting residency in Iowa is easier than it is in Florida (90 days instead of 365).
If the UI were so inclined they could easily find a work around for the residency requirement, but it would almost certainly be at a cost to the students. Residency is hardly a brick wall of a barrier to overcome, but putting it there can be an expensive hurdle for potential out of state students who might look elsewhere. It worked out for me because I was given a TA position and a substantial scholarship when the first semester started, but half of my cohort were on food stamps for at least part of their PhD program and none of us could afford doctors or dentists during grad school. The first thing I did when I got my first faculty paycheck was set a dentist appointment because I hadn't been able to drink ice water without searing tooth pain for nearly 15 months. I don't necessarily disagree with the people saying the UI could be better positioned to serve the state, but a quota is more of a burden on students who want to come to the state of Iowa than it is on the university itself.
If the issue is retention of medical professionals in the state, then one alternate option might be tuition forgiveness for people receiving advanced degrees in the desired industries who work in the state for a designated period of time (similar to the model currently applied in rural California). The specifics of the plan would likely need to be adjusted but the idea at least doesn't have the effect of saying "Not from Iowa? Fuck you!" to a lot of people who would actually like to be there.