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The health insurance tax that will HIT your premiums

Escaping scrutiny in the debates on both tax reform and the repeal of the Affordable Care Act has been a looming excise tax that will be imposed on all health insurance premiums sold by large insurance companies beginning in January.

Known officially as the Health Insurance Provider Fee and colloquially as the health insurance tax, or HIT, the tax will cost large insurance companies $13 billion in 2018 and increase gradually every year until it reaches $21 billion in 2027.

The theory behind the tax, when it was approved as part of the ACA, was that insurance companies were going to benefit greatly from increased business and as such should shoulder some of the cost of President Barack Obama’s health insurance reform.

Obama’s individual and employer mandates — taxes on those who go without insurance and large employers who fail to provide insurance for employees — did drum up significant business for insurance companies, increasing enrollment in their most profitable sector. According to an analysis by CNBC, the nation’s six largest health insurance companies reported $6 billion in adjusted profits for the second quarter of 2017.

But insurance companies don’t get rich by accident.

There’s no doubt some or all of the health insurance tax will be passed on to consumers through the premiums they pay in 2019 (most premiums have already been set for 2018). The tax also would apply to premiums sold in the Obamacare marketplaces, a sector of the insurance industry that has struggled to maintain not only profitability but viability.

Although we are somewhat skeptical of a report conducted by Oliver Wyman because it was funded by the health insurance company UnitedHealth Group, the consulting firm’s research is instructive in that it assumes health insurance companies will pass the entire tax burden onto consumers through their premiums. The report estimates the health insurance tax would have increased premiums by 2.6 percent in 2018 if it had been left in place in 2017.

Reluctantly we have to agree that this tax will likely hit consumers harder than it hits the insurance industry. This is at a time when Congress is going to spend trillions of dollars in the next 10 years subsidizing health insurance to try and make it affordable to all Americans.

There was bipartisan support in 2015, including from Colorado’s Democratic Sen. Michael Bennet, for an appropriations bill that suspended the tax for calendar year 2017. We hope such support can be found again to suspend the tax in 2018 until insurance markets stabilize or the tax can be tailored more specifically so it won’t be passed on to consumers, especially those in the individual market.

U.S. Sen. Cory Gardner, a Republican from Colorado, has introduced the Healthcare Tax Relief Act to delay the tax for another year. His bill has broad support from Colorado’s small businesses, which fear premium increases will leave them with little choice but to drop insurance plans for their employees.

We urge Congress to consider Gardner’s delay. But we also call again for Republicans and Democrats to work together on long-term solutions for our ailing health insurance market. Sensible stop-gaps exist, including the bipartisan bill introduced by Sens. Lamar Alexander of Tennessee and Patty Murray of Washington and Bennet’s proposal to create a public option to compete with the private insurance industry.

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