Quote-of-the-day mailing list
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Subject: qotd: ACA health insurance tax
Date: Fri, 8 Feb 2013 13:44:15 -0800
From: Don McCanne <firstname.lastname@example.org>
To: Quote-of-the-Day <email@example.com>
February 7, 2013
Tax hikes you may have forgotten about
By Alex Brill, research fellow, American Enterprise Institute
One of the next ACA taxes scheduled to take effect is a health insurance
tax that will hit small businesses and their employees particularly
hard. The tax is officially imposed on health insurance companies, but
the greatest effect will be felt by their customers because the
insurance companies will pass most of the burden on through higher
premiums. An analysis by the nonpartisan Joint Committee on Taxation
found that the tax will raise insurance premiums on average by $350–$400
per affected family in 2016.
The higher premiums caused by the new tax will also prompt some
employers to self-insure rather than purchase true insurance for their
workers. The tax exempts employers who self-insure, as well as certain
nonprofit insurers who provide more than 80 percent of their services to
Medicare, Medicaid, CHIP, or dual-eligible plans.
Normally, when some taxpayers change their behavior and avoid a tax, the
tax raises less revenue than might otherwise be expected. Oddly, the
insurance tax is designed in a way that prevents any revenue decline.
The ACA presets the insurance tax's total revenue yield at $8 billion
next year, rising to $14.3 billion by 2018. To make this possible, each
year's tax is calculated in the following year, with the preset total
tax burden allocated among insurance companies based on each company's
share of the market.
If insurance companies raise premiums to cover the tax and some
employers respond by self-insuring, the result will be a bigger tax on
the employers that remain in the insurance market. Of course, the bigger
tax would fuel another round of premium hikes, causing more employers to
self-insure, further premium increases, and so on.
According to the Kaiser Family Foundation's 2012 Survey of Employer
Health Benefits, 15 percent of the smallest employers self-insure,
roughly half of employers with 200–999 workers self-insure, and 93
percent of firms with more than 5,000 workers do so. Because the
smallest employers almost never self-insure, they will end up bearing
the brunt of the tax. Midsized firms will be most likely to shift to
self-insuring their workers.
Congress and the public may not view insurance companies as sympathetic
figures. But it's the insurance companies' customers who will be most
penalized by this new tax, whether through $400 premium increases or by
being forced to run the risks of self-insuring.
Comment: When we are talking about financing our health care system -
17 percent of our GDP - we have to get tax policy right. One tax being
imposed by the Affordable Care Act - a tax on health insurers - will
surely be passed on to purchasers of health plans in the form of higher
premiums. When health health insurance premiums are already unbearable
for many, it doesn't seem wise to adopt a tax policy that pushes
premiums even higher.
Another peculiarity about this tax is that self-insured employers are
exempt. We have already written about the serious problems with the
current trend of small businesses self-insuring - less regulatory
oversight, exemption from some of the provisions of the Affordable Care
Act, and the vagaries of stop-loss insurance for the self-insured. Yet
the insurance tax will increase this unfortunate trend.
Since the global amount of the tax is set in law and it is assessed
proportionately amongst the insurers, as many employers convert to
self-insurance, the tax payment required of those continuing to be
insured through private plans will rise disproportionately. Although
this might not reach the level of a death spiral, the distribution would
certainly be inequitable.
One of the most important features of a single payer national health
program is that it would be funded through equitable tax policies.
Everyone pays their fair share, based on ability. Not only could we fix
our health care system through single payer reform, but we would have
the additional advantage of moving us much closer to an equitable system