Football season may be over, but the hits keep coming—not on the field but in the pocketbook. Last year, a little known tax called the Health Insurance Tax, or HIT, kicked in as part of the Patient Protection and Affordable Care Act (ACA). The HIT, along with the individual mandate, are two of the largest tax increases in the healthcare law.
Labeled as a “premium fee,” the HIT is considered an excise tax by the Internal Revenue Service (IRS) and levied on the net premiums of health insurance companies. The tax, which totaled $8 billion in 2014, is divided among companies based on market share. The larger the insurance company’s market share, the higher their annual HIT.
The details are complicated (it is administered by the IRS after all), but it isn’t hard to figure out the end result—Americans with private insurance coverage feel the HIT.
Most farmers and ranchers, as well as other small business owners, don’t have a large enough pool of employees to be self-insured so they purchase health insurance in the fully insured market. Fully insured plans are the only plans that factor into the equation that determines how much tax an insurance company pays. The cost to companies, therefore, is passed on to farmers, ranchers and small business owners that purchase those plans.
A Congressional Budget Office (CBO) report confirmed that the HIT, as well as the fee on manufacturers and importers of medical devices embedded in the ACA, “would be largely passed through to consumers in the form of higher premiums for private coverage.”
Unsurprisingly, the tax doesn’t sunset or decrease. As posted on the IRS’ website, the tax will rise to $14.3 billion in 2018 and increase thereafter by the rate of insurance companies’ premium growth. For families, the impact may be as much as $500 a year based on a study conducted by former CBO Director Douglas Holtz-Eakin.
The U.S. House of Representatives recently voted to repeal the ACA and is expected to turn its attention to stand-alone bills dealing with parts of the law. H.R. 763, the Jobs and Premium Protection Act, and its Senate companion S. 603, would repeal the tax.
Farm Bureau has long believed one of the primary goals of health insurance reform should be to reduce costs, not make it more difficult to afford coverage. Congress needs to act; farmers, ranchers and small business owners shouldn’t have to take the HIT year after year.
Garrett Hawkins, of Jefferson City, Missouri is director of national legislative programs for the Missouri Farm Bureau, the state’s largest farm organization.