March 7, 2013

Health Care Policy Update: Taxing Health Insurance Makes It More Expensive

President Obama’s health care law imposes more than $1 trillion in new taxes on employers, manufacturers, and middle class families. According to the Joint Committee on Taxation (JCT), the law violates the President’s pledge not to raise taxes on families making less than $250,000 per year.

The health care law’s tax hikes come as our nation’s fragile economy continues to struggle. The Congressional Budget Office predicts that unemployment will remain above seven percent through most of 2015, but the Obama Administration stays busy issuing thousands of pages of regulations to implement the law. The regulations are a giant wet blanket on creativity and innovation among America’s entrepreneurs. Americans will have to spend 127.6 million hours complying with all the new regulations.

Last week, the IRS released a proposed rule implementing Section 9010 of the health care law. This section imposes a tax on health insurance providers starting in 2014, based on net premiums in the fully insured market. The aggregate tax in 2014 is $8 billion. It climbs to $11.3 billion in 2015 and 2016, reaches $14.3 billion in 2018, and after that grows by premium inflation.

Supporters of the law argue insurance companies will simply absorb the tax. Independent experts tell a different story.

  • The JCT makes it clear that the insurance tax will be borne by: 1) consumers in the form of higher prices; 2) owners of firms in the form of lower profits; 3) employees of firms in the form of lower wages; or 4) other suppliers to firms in the form of lower payments.
  • JCT expects “a very large portion of the insurance industry fee to be passed forward to purchasers of insurance in the form of higher premiums.” And “eliminating this fee could decrease the average family premium in 2016 by $350 to $400.”
  • Actuarial firm Oliver Wyman produced a new report showing the state-by-state cost impact. It concluded, “for each dollar paid in taxes, an additional $1.54 in premium must be collected.” Over 10 years, the taxes will add an average across all states of $7,186 for family plans in the large-group market.
  • Doug Holtz-Eakin also released a study showing that the health insurance tax will raise premiums by as much as three percent – or nearly $5,000 per family over a decade. Few hardworking American taxpayers can afford to see their take-home pay slashed by $5,000 thanks to the President’s new tax.
  • An analysis by the National Federation of Independent Business found the health insurance tax will force the private sector to shed between 125,000 and 249,000 jobs between now and 2021. More than half of all those job losses will be at small business.

Health Care Headlines

The Hill: “IRS Moves to Collect Billions in Fees from Healthcare Law” The IRS on Friday unveiled its proposal to raise tens of billions of dollars through annual fees on health insurers, prompting fierce criticism from industry groups that warn the costs will be passed along to consumers.

The Hill: “Sequester won’t interrupt collection of taxes from ‘ObamaCare’” IRS and Treasury officials have warned of reduced services as employees are furloughed under the sequester, but neither agency has expressed any concern that the automatic spending cuts would delay the rollout of the healthcare overhaul.

CNBC: Beige Book Says Obamacare Is Costing Jobs and Sales: The Affordable Care Act is cited five times in the Federal Reserve's latest Beige Book. One of those citations notes that the law will likely drive up demand for health care services. The other four describe the health care reform as hurting employment and sales.

The Washington Examiner: “GOP Report: Premiums Could More Than Double Under Obamacare” An editorial notes that health care premiums could more than double for some Americans when the major provisions of President Obama’s health care law go into effect next year, according to a new report from congressional Republicans. The report, based on a compilation of studies on the effect of the law’s new regulations, finds that premiums could increase 40 percent on average, and by as high as 202 percent for young adults living in Chicago.

The Wall Street Journal: “Another Big Step in Reshaping Health Care” Hospitals and health insurers are locking horns over how much health care providers will get paid under new insurance plans that will be sold as the federal health law is rolled out. The results will play a major role in determining how much insurers will ultimately charge consumers for these policies, offered through exchanges in each state.

Issue Tag: Health Care