Beginning in 2014, many Americans will start paying for a new tax on health insurance that will be assessed against health plans and insurers but will actually be paid through increased premium rates, according to several prominent insurance and financial experts. Buried within the Patient Protection and Affordable Care Act (PPACA), Section 9010 requires individuals, families, and others to help pay a total of $73 billion over five years. Implementation of this provision is generating mixed reviews by various stakeholder groups.
As highlighted in a recent issue brief published by American’s Health Insurance Plans (AHIP), the new tax is being criticized as antithetical to the purpose of PPACA, namely providing affordable health insurance to all. AHIP states, “The sales tax on health insurance will have the opposite effect by increasing costs for families, small businesses and seniors.”
In contrast, proponents of the tax argue that it “would raise much needed revenue, and that the insurers paying the tax will be benefiting from PPACA sections that should prod many more individuals and employers to start buying health coverage.”
According to the Congressional Budget Office (CBO), Section 9010 would essentially “impose a tax on health insurers that would start at $8 billion in 2014 and increase to about $14 billion by 2018.”
In an analysis conducted by Oliver Wyman for AHIP, the tax is estimated to increase premiums on average by 1.9% to 2.3% in 2014, and by 2023 will increase premiums 2.8% to 3.7%. The study estimates that for small groups, “This will on average increase the cost to cover an individual by about $2,800, and a family by about $6,800 over a 10-year period.” Wyman concludes that individual market consumers, small employers, as well as Medicare and Medicaid beneficiaries would all be subject to increased premiums as a direct result of the tax.
Other examinations of the tax have also concluded that the end result will likely be increased premium costs. The CBO and Joint Committee on Taxation (JCT) concluded “that the average premium per person covered for new nongroup policies would be about 10% to 13% higher in 2016 than the average premium for nongroup coverage in that same year under current law,” although “approximately half of those enrollees would receive government subsidies that would reduce their costs.”
Douglas Holtz-Eakin of the American Action Forum has likened the tax to an excise tax; as the total number of policies sold increases, the firm’s total tax liability also increases and the firm will pass this increase in cost to the consumer. In a recent examination of the tax, Holtz-Eakin concluded, “All insurers – for profit and non-profit alike – will seek to restructure in an attempt to restore profitability…firms will either reduce compensation growth, squeeze labor expansion pains, or both.” Holtz-Eakin continues to point out that not only will consumers be faced with increasing costs, but also that the fees are not tax deductible and the higher premiums will be taxable.
PPACA supporters have argued that the tax will not directly increase premiums, and in fact, the insurers are the party who will ultimately pay the tax. Holtz-Eakin and others have countered that this is simply not true. “Insurers that attempt to adjust entirely on the cost side will be unable to maintain their operations at a competitive level, and will lose market share or even depart the industry entirely.” Wyman also argues the tax’s ultimate impact will be a massive financial blow to individuals. According to Wyman, “Further incentive for employers to self-insure…as a means of avoiding these fees – increasingly shifting the burden of the fees to smaller employers and individuals who…must shoulder the cost of a statutorily fixed level of fees.”
Although some of these predictions appear incredibly bleak, bipartisan legislation was introduced in the House of Representatives to repeal the tax. H.R. 1370 was introduced in April 2011 and has since been referred to the Subcommittee on Health.
As PPACA implementation continues, the issue of increasing tax burdens directly on health plans and indirectly on consumers must be addressed. While industry insiders anxiously await the Supreme Court’s ruling on PPACA, the question of whether insurance purchasers are willing and able to cope with additional financial burdens in exchange for more expansive care remains to be seen.
As always, BenefitMall pledges to keep you up to date on these issues and more. Stay tuned to www.benefitmall.com and www.HealthcareExchange.com.
The views expressed in this post do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.