Commentary by Janet Trautwein, CEO, NAHU
(Originally featured on Investors.com – link)
The House of Representatives just passed a bill to cut taxes on America’s working class. H.R. 6311, which enjoys bipartisan support, would postpone the federal “Health Insurance Tax,” or HIT, through 2021.
The tax costs hard-working Americans and small businesses billions of dollars each year. Suspending it would offer immediate relief to Americans struggling with soaring premiums.
Now it’s up to the Senate to follow suit and pass the bill. But Congress shouldn’t stop there — our leaders should make full repeal of the Health Insurance Tax their ultimate goal.
The tax went into effect in 2014, as part of the Affordable Care Act. Every insurance company that sells conventional, fully insured policies — including plans sold through the Affordable Care Act’s exchanges, large and small group markets, and privately administered Medicare and Medicaid coverage — is subject to the tax.
The HIT’s burden keeps growing. In 2014, it collected $8 billion from insurers. In 2015, it took in more than $11 billion. This year, it will increase to more than $14 billion.
To offset these costs, insurers have raised premiums. The Kaiser Family Foundation estimates that the HIT inflated exchange plan premiums by 2 to 3 percentage points this year. Consulting firm Oliver Wyman calculates that the HIT raised premiums by more than $500 for families with employer-sponsored coverage, by $255 for people with Medicare Advantage plans, and by $165 per person for people in the individual market.
Over the next decade, the tax could increase total premiums for family coverage by an average of $5,000 — and premiums for individual coverage by more than $2,100.
Struggling Americans ‘HIT’
The tax targets Americans who can least afford it. More than half of the HIT is paid by Americans earning between $10,000 and $50,000 a year.
Small businesses in particular suffer. Ninety percent of small firms that offer health benefits purchase conventional fully insured plans — exactly the plans hit by the HIT.
Large employers often “self-insure” their health benefits, meaning that they pay their workers’ medical bills directly. Self-insured plans aren’t subject to the HIT. But most small firms don’t have the financial ability to take on the risk of covering their employees’ medical bills on their own, and thus avoiding the Health Insurance Tax.
Consequently, small business premiums have skyrocketed. From 2010 to 2015, seven in 10 small businesses reported premium increases of more than 20%. Nine in 10 businesses reported that their premiums went up the when they last renewed their health insurance.
Small Business Hardships
More than one-third of small businesses already find it difficult to cover their basic operating expenses, according to a 2017 report by the Center for Financial Services Innovation. These firms simply won’t be able to maintain their current operations as the HIT burden grows. They’ll have to cut benefits, jobs, or some combination of the two. The tax is expected to result in the loss of 163,000 small business jobs over the next decade.
Americans gained a brief respite from the tax last year; Congress suspended the tax for 2017. And this past January, lawmakers decided to suspend the tax in 2019, too. But it’s still in effect this year and every year after 2019.
H.R. 6311 would relieve Americans from paying the HIT through 2021. Passing it through the Senate would be a good start. Repealing the tax permanently would be even better — and would allow Republicans and Democrats alike to make good on their shared desire to reduce the cost of health insurance.
Trautwein is CEO of the National Association of Health Underwriters (www.nahu.org).