Health Insurance Report™ helps you track and analyze legal, legislative, and regulatory developments affecting the health-insurance industry throughout implementation of the Affordable Care Act...
By Sara Hansard
Opponents and supporters of the health care reform law debated whether a fee levied on health insurers beginning in 2014 would result in job losses, during a May 9 hearing of a House Small Business subcommittee.
A study released March 19 by the NFIB Research Foundation, part of the National Federation of Independent Business (NFIB), found that between 146,000 and 262,000 jobs would be lost in the private sector as a result of the fee, 59 percent of which would be from small businesses, William Dennis, a senior research fellow with NFIB, testified. The hearing, “The Health Insurance Fee: Impact on Small Businesses,” was held by the Subcommittee on Health and Technology.
The fee will raise premiums of employer-sponsored insurance by as much as 3 percent, costing nearly $5,000 per family over a decade, the NFIB study said. The fee is “large; it's highly inequitable; it's nontransparent; and it cascades,” Dennis said. “In effect what it does is raises the cost for smaller businesses; it worsens their competitive position; and ultimately it gives those small business owners without health insurance another reason for not providing it to their employees,” he said. NFIB has about 350,000 small business members.
The Affordable Care Act assesses annual health insurance fees on health insurance companies beginning in 2014, according to a May 6 Small Business Committee memo on the hearing. The fee is to be apportioned among fully insured health insurance plans based on net premiums, which will be calculated by the Internal Revenue Service. The aggregate amount of the fee for all insurers will be $8 billion for 2014 and will rise to $14.3 billion by 2018, and be indexed to net premiums after that.
The Joint Committee on Taxation (JCT) estimated in 2012 that the tax would raise $101.7 billion from fiscal year 2013 through fiscal 2022. The fee is the largest of the industry-specific taxes or fees levied by ACA.
Both JCT and the Congressional Budget Office (CBO) have said a large portion of the fee is likely to be passed on to health insurance purchasers through higher premiums, subcommittee Chairman Chris Collins (R-N.Y.) said. JCT has said the fee is essentially an excise tax based on the sale price of health insurance, so it is not tax-deductible, he said.
The fee is a particular problem for small businesses, Collins said, because ACA exempts self-funded plans from the fee, but it is applied to fully insured plans. Small business owners typically do not have large enough groups to self-fund health coverage and usually buy fully insured plans, he said.
Collins called for passage of H.R. 763, introduced by Reps. Charles W. Boustany Jr. (R-La.) and Jim Matheson (D-Utah), which would repeal the fee. One hundred sixty-two House members have signed onto the bill. Similar legislation, the Jobs and Premium Protection Act (S. 603), was introduced in the Senate by Sens. John Barrasso (R-Wyo.) and Orrin G. Hatch (R-Utah); 18 senators have signed it. The health insurance industry also has called for the fee's repeal (see previous article).
Rep. Janice Hahn (D-Calif.), the subcommittee's ranking member, said “as we move towards the implementation of some of the biggest components of ACA next year, there may well be some things we need to do to adjust and correct issues that come along.”
The health insurance fee “may have an undesirable impact on consumers, including small businesses, in the form of increased premiums,” Hahn said. But the fee “was meant to raise $90 billion from insurance companies, not their customers. With the insurance mandate poised to deliver millions of new customers to insurance companies, it would seem fair to ask the insurance companies to pony up some of the cost of the law that was going to give them so many more millions in customers,” she said.
“However, these companies threaten to recoup the fee from consumers through increased premiums rather than absorb the fee themselves,” Hahn said. “Higher premiums present a real risk to small employers in their ability to invest and grow.”
Collins questioned the idea that insurers will gain large numbers of new customers. “My concern is just the opposite,” he said. “There will be fewer and fewer policies. The young and the healthy will in fact understand that they can drop health insurance altogether, and because there's no penalty for pre-existing conditions why would they have health insurance at all?”
Many companies may reduce workers' hours to escape the law's requirements, and the $2,000-per-employee penalty that will be levied on companies with at least 50 full-time employees that do not provide coverage is less than what companies pay for insurance, Collins said. “You might see a significant number of companies dropping health insurance,” which would reduce the number of health insurance customers, he said.
Paul Van de Water, a senior fellow with the Center on Budget and Policy Priorities, said “claims that the health insurance tax in particular or health reform in general will kill jobs are unfounded.” CBO foresees only a small net reduction in the labor supply, primarily because some people who work mainly to obtain health insurance will choose to retire earlier or work less, not because employers will eliminate jobs, he said.
The fee and other ACA taxes on businesses that will benefit from health reform are levied to pay for expanding coverage under the law to an estimated 27 million people, Van de Water said. Supply and demand will determine how the fee will be split between insurers and purchasers, he said.
“Insurance companies have recently turned in very strong financial results and thus are well positioned to bear some of the tax,” Van de Water said. “But a portion of the tax is likely to be passed on to consumers.”
However, ACA contains other provisions that will slow the growth of premiums, such as online marketplaces that are intended to increase competition among plans; standardization of benefits and prohibitions on medical underwriting that will reduce administrative costs; rate reviews of premium increases of 10 percent or more; and a requirement that insurers spend at least 80 percent of premiums on medical care or quality improvements, Van de Water said.
CBO estimates that ACA will reduce average premiums by up to 3 percent in 2016 compared with where they otherwise would be, Van de Water said. For small employers, estimated changes in premiums range from a 1 percent increase to a reduction of 2 percent, and small employers that benefit from a tax credit in the law will likely see insurance decreases of 8 percent to 11 percent, he said.
“The health insurance tax forms part of a carefully thought-out structure to expand health insurance coverage and slow the growth of health care costs without adding to the budget deficit,” Van de Water said. “Any effort to modify or repeal this tax must not undercut any of these three crucial objectives.”
Information on hearing is at http://smallbusiness.house.gov/calendar/eventsingle.aspx?EventID=326579. The JCT 2012 revenue estimate is at http://waysandmeans.house.gov/uploadedfiles/jct_june_2012_partial_re-estimate_of_tax_provisions_in_aca.pdf.
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