The Health Insurance Tax (HIT)

The Health Insurance Tax (HIT)

ISSUE SUMMARY:

The health insurance tax included in the Affordable Care Act (ACA) will increase the cost of health care coverage for consumers and employers in every state. The ACA imposes a new sales tax on health insurance that started at $8 billion in 2014, will increase to $14.3 billion by 2018, and will continue to increase each year. The Joint Committee on Taxation estimates that the health insurance tax will exceed $100 billion over the next ten years.

ACTION NEEDED:

NAHU(National Association of Health Underwriters has partnered with the Stop the HIT Coalition, a coalition representing the nation’s small business owners, their employees and the self-employed who are actively working to repeal the Health Insurance Tax (HIT) provision in the Affordable Care Act (ACA). The Stop the HIT Coalition’s goal is to repeal Section 9010 of the ACA and stop the implementation of the HIT on small businesses. We support the legislation to repeal the HIT and urge the 115th Congress to take expedient action to ensure its enactment.

BACKROUND:

A 2011 analysis by Oliver Wyman estimated that this tax “will increase premiums in the insured market on average by 1.9% to 2.3% in 2014,” and by 2023 “will increase premiums 2.8% to 3.7%.” The Oliver Wyman analysis also estimates the effect of the new tax on insurance market segments and public programs:

  • Impact on individual market consumers: Increase premiums over a ten-year period for single coverage by an average $2,150, and for family coverage an average $5,080.
  • Impact on small employers: Increase premiums over a ten-year period for single coverage by an average $2,760, and for family coverage an average $6,830.
  • Impact on large employers: Increase premiums over a ten-year period for single coverage by an average $2,610, and for family coverage an average $7,130.
  • Impact on Medicare Advantage beneficiaries: Increase costs $16 to $20 per member per month in 2014 and will increase to between $32 and $42 by 2023. The average expected increase in the cost of Medicare Advantage coverage over ten years is $3,590.
  • Impact on Part D beneficiaries: Increase average premiums by $9 in 2014 and by $20 in 2023 for a total increase of $161 over ten years.
  • Impact on Medicaid managed care beneficiaries: Increase the average costs of Medicaid coverage by about $1,530 per enrollee between 2014 and 2023.

While the HIT is cloaked as a fee, actually it is a tax on insurance providers that will undoubtedly be passed on to small businesses, their employees and the self-employed. The Congressional Budget Office (CBO) has confirmed this, stating that the HIT “would be largely passed through to consumers [small and family-owned businesses] in the form of higher premiums for private coverage.”

Increasing the cost of health insurance plans for small business owners and the self-employed makes offering affordable coverage, or any coverage at all, to employees more difficult. In fact, former CBO Director Douglas Holtz-Eakin estimates the average impact is as much as a three percent (or $5,000) increase in premiums for a family of four over ten years.

The members of our association are primarily small-business owners who make their living serving the health coverage needs of American employers and their employees. NAHU members know all too well how high health care costs and new coverage requirements are hindering our nation’s economic growth. When this new tax is are combined with myriad new compliance responsibilities that employers must now perform on behalf of their employees, it will be no surprise when many companies reevaluate their benefit choices.

KEY POINTS:

  • The Health Insurance Tax (HIT), part of the Affordable Care Act (ACA), is one of the largest tax increases, at $159 billion over its first 10 years, included in the bill, and falls directly on the small business community.
  • This tax will exceed $68 billion in assessments between 2014 and 2019 alone and is levied on health insurance companies, which is passed onto employers and employees.
  • A study by former CBO Director Doug Holtz-Eakin shows that, on average, the HIT will cost each family about $5,000 in higher premiums over the decade.
  • In a statement from the Joint Committee on taxation, Chief of Staff Thomas Barthold explains that eliminating this fee could decrease the average family premium in 2016 by up to $400.
  • A survey by McKinsey & Co. published in June 2011 indicated that as many as 30 percent of employers were planning to terminate their health care coverage and allow their employees to buy their own health insurance after the new system becomes mandatory in 2014.
  • The HIT impacts the estimated 88% of small businesses who buy insurance through the fully insured marketplace.