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With ACA Repeal on Hold, Return of Health Insurance Tax Worries Business Groups

Mary Caffrey
Large employers that self-insure can avoid the tax, but that option is off limits to small businesses like restaurants or convenience stores.
For a time, it looked like “repeal and replace” would rid small business owners of the costs and insurance mandates they loathed in the Affordable Care Act. But then “repeal” collapsed on the Senate floor, leaving the law intact.

That means the “annual fee,” which insurers call the Health Insurance Tax  or HIT, remains on the books. The HIT took a holiday in 2017 thanks to the Consolidated Appropriations Act of 2015, but is scheduled to return next year. Lobbyists for small business groups are not pleased about this, and they want Congress to cancel the HIT before premiums are set for 2018.

Trade associations long ago created a coalition called "Stop the HIT" to oppose the tax, and this week the group issued a press release to highlight a report commissioned by UnitedHealthcare touting the cost of the tax if it returns in 2018.

“Absent immediate Congressional action to repeal or delay the Health Insurance Tax, small businesses and their employees, seniors, and young workers will face a major tax hike—$14.3 billion—when the HIT returns in 2018,” the release states.

Stop the HIT quotes a Congressional Budget Office report that said the HIT “would be largely passed through to consumers in the form of higher premiums for private coverage.”

Although large employers have the option to self-insure and avoid the tax, that is not an option for places like restaurants, funeral homes, retailers, and convenience stores. Employees there are fully insured through the small group market, and these premium costs are not tax deductible for health insurers.

The new report by Oliver Wyman estimates that the tax will increase premiums by 2.6% in 2018, and between 2.5% and 2.7% in later years when amounts collected are tied by law to premium trends. In 2018, the report says these amounts are:

  • $158 per individual in the non-group market
  • $185 per single contract in and $500 per family contract in the small group market
  • $188 per single contract $540 per family in the large group market
  • $245 per Medicare Advantage member
  • $181 per Medicaid managed care enrollee
While trade associations of small employers are listed as members of Stop the HIT, the Oliver Wyman studies are also quoted on the website of America’s Health Insurance Plans (AHIP), the association for health plans, which directly pay the tax.

AHIP calls the tax, “highly regressive, targeting the poor and middle class. Roughly half of the health insurance tax will be paid by Americans earning between $10,000 and $50,000 per year,” through Medicaid and Medicare.

The Oliver Wyman report predicts a host of consequences if the tax returns, such as increased cost sharing in Medicare Advantage and Part D programs, added burdens on small employers who must pay taxes while self-insured employers escape them, and an escalation of “adverse selection” behavior among young adults.

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