New Technical Analysis of Impact of Premium Tax

A new technical analysis by Oliver Wyman estimates that the new health insurance tax in the Affordable Care Act (ACA) “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%.”

AHIP commissioned this report as part of its ongoing effort to raise awareness about the impact the tax will have on consumers, employers and public program beneficiaries. To learn more, please visit www.ahipcoverage.com/premiumtax.

This new tax on health insurance plans amounts to $8 billion in 2014, increases to $14.3 billion in 2018, and increases based on premium trend thereafter. The tax will be allocated to each insurer based on its applicable net premiums during the year. Between 2014 and 2019, the total amount assessed will be at least $73 billion.

This new analysis, Estimated Premium Impacts of Annual Fees Assessed on Health Insurance Plans, is consistent with previous analyses on how the premium tax will impact the cost of coverage:

  • According to the Joint Committee on Taxation: “For those insurance premiums that are subject to the fee, we estimate that the premiums, including the tax liability, would be between 2.0 and 2.5 percent greater than they otherwise would be. You asked for an estimate of the dollar amount of price change associated with the fee on the premium for a family of four. While we have not separately estimated premiums by family size, we estimate that eliminating this fee could decrease the average family premium in 2016 by $350 to $400.”
  • In a November 30, 2009 letter to Senator Bayh, the Congressional Budget Office states that “New fees would be imposed on providers of health insurance and on manufacturers and importers of medical devices.  Both of those fees would be largely passed through to consumers in the form of higher premiums for private coverage.”
  • An analysis of the premium tax by former CBO director Douglas Holtz-Eakin concludes that “The anticipated impact is as much as 3 percent or nearly $5,000 per family over a decade.”

Bipartisan legislation has been introduced to repeal the new health insurance tax. This bill currently has 73 co-sponsors.

The new 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 $1,900 under the lower-end estimate and $2,400 under the higher-end estimate (for an average $2,150 increase in premiums), and for family coverage would increase by $4,500 and $5,700 (for an average $5,080 increase in premiums).
  • Impact on small employers: Increase premiums over a ten-year period for single coverage by $2,400 under the lower-end estimate and $3,100 under the higher-end estimate (for an average $2,760 increase in premiums), and for family coverage would increase by $6,000 and $7,700 (for an average $6,830 increase in premiums).
  • Impact on large employers: Increase premiums over a ten-year period for single coverage by $2,300 under the lower-end estimate and $2,900 under the higher-end estimate (for an average $2,610 increase in premiums), and for family coverage would increase by $6,200 and $8,000 (for an average $7,130 increase in premiums).
  • 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, with an average expected increase in the cost of Medicare Advantage coverage of $3,590 over ten years.
  • 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.

According to the report, “the potential result of these increases will be:

  • “An increase in the cost of fully insured health care coverage, impacting individuals and smaller firms in particular, across both the commercial and public sectors.
  • “Further incentive for employers to self-insure their health benefits coverage as a means of avoiding these fees – increasingly shifting the burden of the fees to smaller employers and individuals who continue to purchase fully insured coverage and must shoulder the cost of a statutorily fixed level of fees no matter the relative size of fully insured coverage markets.
  • “Increased costs facing the Medicare Advantage and Part D programs that, following basic economic and actuarial principles, will result in increased cost-sharing and premiums for Medicare Advantage and Medicare Part D enrollees.
  • “Greater pressure on state budgets to address increasing costs for Medicaid managed care plans.
  • “A potential exacerbation of concerns related to ‘adverse selection’ in the individual and small group markets as younger, healthier individuals forego coverage leading to a less stable risk pool and higher premiums.”

The Oliver Wyman report also notes that the new tax assessed on health insurance plans is non-deductible for federal tax purposes. According to the analysis “this feature implies that for each dollar assessed and paid in fees, more than a dollar in additional premium amounts must be collected.”

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