Congress, state governors, medical schools, and insurance companies have all weighed in on the possible ramifications of a new surcharge on health insurance premiums included as part of the Affordable Care Act, according to a recent report by the Congressional Research Service. The new fee is scheduled to raise $8 billion in revenue in 2014, and $60 billion from 2014 through 2018.
Background. Prior to the enactment of ACA, there was no provision in federal law to tax or levy a surcharge on health insurance companies, although almost all states impose a health insurance premium tax. This tax varies from less than 1 percent of premiums in Nebraska and Wyoming to 3 percent or more in Hawaii, Mississippi, and Nevada. The most common premium tax is between 2 percent and 2.5 percent of premiums, imposed by half of the states in 2009. According to the U.S. Census Bureau, in 2012, states collected $16.7 billion in premium taxes on a broad range of insurance (including property and casualty, life, and health products).
The new tax (ACA Sec. 9010) will be levied on insurance companies based on the amount of health insurance premiums the company collects each year. Insurers with net premiums in a calendar year of $25 million or less are exempt from the fee. For insurers with more than $25 million but not more than $50 million in premiums, 50 percent of the premiums will be taken into account in determining the fee; and 100 percent of the premiums will be taken into account in determining the fee for insurers with more than $50 million in annual premiums.
Under the ACA, each year the IRS will apportion the fee among covered insurers based on (1) their net premiums written in the previous calendar year as a share of total net premiums written by all covered insurers, and (2) the dollar value of business.The new tax does not apply to entities that fully self-insure, government-run insurance programs, or non-profit insurers incorporated under state law that receive more than 80 percent of their gross revenues from government programs that target low-income, elderly, or disabled populations.
CRS review. According to the CRS, “Insurers’ ability to pass on the new ACA tax, in the form of higher premiums to consumers, will vary based on factors such as the degree of market competition or a firm’s specific business strategy.” The CRS also noted the following issues regarding the new fee –
· At least five bills have been introduced in Congress to repeal the new fee or to require better reporting to consumers about the nature of the fee.
· Some state governors have raised concerns that the premium fee will result in higher costs to states that offer fully capitated Medicaid managed care plans under contract with insurers. The Republican Governors Association has asked Congress to exempt Medicaid and Children’s Health Insurance Program managed care plans from the insurance tax.
· The Association of American Medical Colleges has asked the Treasury Department to consider using part of the revenue raised through the new fee to fund graduate medical education programs, noting that “as [ACA’s] marketplace reforms are implemented and the number of Americans with health insurance expands, it is critical that the nation also explores ways to expand support for GME.”
· Some insurance companies are looking for a tax break on any revenues they raise by passing on the cost of the new fee to consumers. According to the CRS, “the insurers argue that they are effectively being `double-taxed’: once through [ACA’s] fees/excise taxes, and next based on income earned from new fees and higher premiums instituted to offset any reduction in profits due to the tax.For more information on "Patient Protection and Affordable Care Act: Annual Fee on Health Insurers," go to crs.gov.