With all eyes on federal tax reform, Congress’s opportunity to delay the implementation of one of Obamacare’s most infamous taxes is winding down. If Congress doesn’t act, through a continuing resolution or otherwise, the Health Insurance Provider fee, less affectionately known as the health insurance tax or HIT will take effect on Jan. 1.
The Health Insuance Tax is one of serveral ways the arcitects of Obamacare tried to pay for the expended coverage under the Affordable Care Act. Perhaps the best example of Obamacare’s technocratic tackover, HIT is not imposed at a specified rate, but rather the effective rate is set annually by the Treasury Department to raise a specific amount of revenue. If allowed to take effect on January 1, 2018, we can expect to see a 4-6 percent tax levied on all insurance plans sold. According to the Congressional Budget Office the total ‘hit’ in 2018 would be $12.3 billion alone, all without Congress having a chance to vote on what amounts to a multi-billion dollar tax increase every year.
While insurance companies aren’t the most sympathetic of victims, the real problem is in who bears the cost here. The Congressional Budget Office advised Congress that HIT would largely be passed onto consumers in the form of higher premiums. One study from Oliver Wyman estimates the health insurance tax would have increased premiums by 2.6 percent in 2018 if it had been left in place in 2017. Similarly, a Kaiser Family Foundation report that outlined expected premium changes in 2018 noted, “[a]n additional factor driving rates this year is the return of the ACA's health insurance tax, which adds an estimated 2 to 3 percentage points to premiums.” The American Action Forum forecasted a 3% impact as far back as 2011. They further estimated that the tax will directly impact as many as 1.7 million small businesses, 11 million households that purchase through the individual insurance market, and 23 million households covered through their jobs.
The single largest groups effected will be small businesses and individuals who purchase health insurance on the individual market. This is because employers that self-insure are explicitly exempted from the tax. Most large employers self-insure, while most small business do not. According to the Stop the HIT Coalition, a group that “represents the nation’s small business owners, their employees and the self-employed,” Kentucky has 341,147 small businesses and 688,540 workers who would be effected should the HIT stay in place. Perhaps worst of all, nearly half of the entire tax is expected to be paid by individuals with incomes between $10,000 and $50,000 a year.
The news isn’t all bad though. Previous delays of the HIT have found rare bipartisan support. According to America’s Health Insurance Plans (AHIP), more than 100 Democrats and 250 Republicans voted to delay the health insurance tax. HIT opponents range from Massachusetts Congressman Richard Neal (D) and Colorado Senator Michael Bennett (D) to our own Senator Mitch McConnell (R), and Congressmen Thomas Massie (R), Jamie Comer (R), Brett Guthrie (R), and Andy Barr (R). The added bonus for Congressional Republicans is that despite their inability to repeal Obamacare in its entirety thus far, repealing the HIT will rip the power to raise taxes away from the Treasury Department and put it back where it belongs, with Congress.
While Americans continue to say that President Trump’s top priority in 2018 should be reducing healthcare costs, Congress can get a jump start by delaying HIT’s implementation for another year before the year’s end, and then passing a full repeal in the new year.
Joshua Crawford is co-executive director of Pegasus Institute, a public policy think-tank based in Louisville.