A Simple Way To Reduce Health Insurance Premiums
The Affordable Care Act’s health insurance tax, or HIT, makes coverage less affordable.
The rising cost of health insurance is, of course, a perennial problem. But it’s not inevitable. Laws enacted by Congress often have the effect of driving premiums upward. A recent example of this is Obamacare’s health insurance premium tax, or HIT. I write about this in a recent article for Forbes:
The Joint Committee on Taxation estimates [that the HIT will raise] $161 billion in revenue between 2019 and 2028. (The number would be higher, but for the fact that Congress passed a one-year premium tax holiday for 2019.)
The problem is this: Health insurers aren’t in the business of going broke. So they pass along the cost of the tax in the form of higher premiums for consumers. According to estimates developed by consultants at Oliver Wyman, for every dollar Washington raises in taxes, premiums go up by around $1.27.
That translates to an annual premium increase in 2020 of $196 per person for those buying coverage through Obamacare; $458–479 for individuals obtaining coverage through their employers; $241 for enrollees in Medicare Advantage; and $147 for enrollees in Medicaid managed care plans.
Nearly every American is affected by this tax, but the biggest impact will be felt by those with lower incomes. Over the next decade, states will face $58 billion in additional Medicaid costs due to the tax, which compresses their ability to fund other Medicaid services. Premiums will also go up $92 billion in employer-based plans and $29 billion in ACA-based plans, which disproportionately affects the working poor.
All in all, the tax raises $161 billion in revenues over the next ten years, but increases premiums by $261 billion over the same period. And because much of that $261 billion in premiums is subsidized by the federal government, the fiscal impact of reducing tax revenue will be offset by lower federal spending on insurance subsidies.
