Health Insurance Premium Tax + Tightened Age Rating Bands + Essential Benefit Buy Ups = Higher Costs

One of the goals of health care reform was to make coverage more affordable, but there are several provisions in the new law that will have the opposite effect by increasing costs for individuals, families and employers across the country. These provisions include a new $70 billion health insurance premium tax, tightening of age rating bands, and the new essential benefits package.

Here are some quick facts on these issues:

Health Insurance Premium Tax:

The CBO noted in testimony to the Senate Finance Committee in September 2009 that the health insurance premium tax along with other taxes on devices and pharmaceuticals “…would raise insurance premiums by roughly the amount of the revenue collected.

According to Douglas Holtz-Eakin, a former director of CBO, “The premium tax alone means that American families will pay as much as $135 billion more in insurance premiums over the next 10 years.” Holtz-Eakin also released a new study on the health insurance premium tax that found “The anticipated impact is as much as 3 percent or nearly $5,000 per family over a decade.”

Check out this fact check for more information and perspectives from small business owners.

Age Rating:

Data show that older patients use significantly more health care services, and thus incur higher health care costs, than younger patients. One way states ensure that coverage remains affordable for everyone is the use of age rating bands that spread premium costs over a range of age groups. For example, in a state with a 5:1 age band, the ratio limits the amount an older individual will pay to no more than five times more what a younger individual pays in premium dollars. If one of the goals of the ACA was to make coverage more affordable, requiring 42 states overnight to change their age rating bands from 5:1 (in some states more) to 3:1 will actually increase costs for individuals aged 18-49. The chart below illustrates the premium impact on various age groups when the age rating changes from 5:1 to 3:1 (in states with wider age rating bands, the impact would be even more severe).

Essential Benefits:

According to CBO, essential benefits buy ups (a “buy up” occurs when an individual or employer is forced to buy more comprehensive coverage than they would want or need to qualify as credibile coverage under the ACA)  would increase premiums between 27 to 30 percent.

MIT’s Jonathan Gruber, a respected economist and consultant to the Obama Administration, estimated that “a 10 percent rise in the cost of the essential benefits package would increase the cost of government subsidies by 14.5 percent, or $67 billion, while reducing the share of the insured by 4.5 percent ,or 1.5 million, through 2019.”

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