Health Insurance Tax May Rise $1.2 Billion Due to New CMS Payment Rule
The health insurance tax could raise premiums by 2.2 percent due to the new CMS payment rule and faces opposition from both Democrats and Republicans.
September 16, 2019 - The health insurance tax, mandated in the Affordable Care Act, will be back in effect in 2020 and is set to generate $15.5 billion in taxes due to CMS’s new 2020 payment rule.
“This new methodology resulted in a higher premium adjustment percentage and thus higher consumer costs, reduced access to premium tax credits, and more uninsured people. It is also now leading to a higher health insurance tax,” Affordable Care Act expert Katie Keith, JD, MPH, said in a recent Health Affairs article.
The health insurance providers fee, or health insurance tax, sets up an “applicable amount,” a fixed fee, to be paid by the health payer industry. In 2020, the fixed fee will be $15.5 billion.
Under the original rule, detailed in the 2020 payment rule background, the fee is allocated to health payers based on market share, which is established by their net premiums from the previous year.
Certain amounts are adjusted for situations in which premium growth exceeded income growth. Before the 2020 payment rule, premium growth was calculated as the amount employers spent per enrollee for employer-sponsored insurance.
According to the CMS 2020 payment rule, however, premium growth is not based solely off of employer-sponsored insurance. It now includes individual health insurance market premium growth as well.
Originally, the Affordable Care Act mandated this tax in order to cover the costs of federal and state marketplace exchanges, actuarial consultants at the Health & Life Sciences practice of global management consulting firm Oliver Wyman have explained.
Because of the $1.2 billion increase in the applicable amount, the experts anticipated that health payers will raise premiums. The actuaries projected a 2.2 premium increase—equaling $154 to $479 based on the market and enrollee—for 2020 and the following decade.
Looking at possible effects over the next ten years, the actuaries expect higher cost-sharing and premiums in Medicare Advantage and Medicare Part D, greater tax burden for small business, fully insured employers, higher costs for states and state tax payers, higher uninsurance rates, and potentially higher adverse selection in individual and small group markets resulting in destabilization.
The tax was active from 2014 through 2016 and in 2018. In the first year, the applicable amount was $8 billion and, by 2018, the fee rose to $14.3 billion. Congress suspended the tax in 2017 and 2019 in an attempt to prevent higher premiums, according to the Better Medicare Alliance(BMA).
BMA projected that the health insurance tax would increase by $241 for the average Medicare beneficiary if it remains in effect in 2020. Medicare and Part D beneficiaries shoulder over 25 percent of the tax, BMA stated. The association also calculated that beneficiaries saved three percent on premium increases due to the 2019 moratorium.
Whether the tax will remain in effect for 2020 is still an open question.
In February, the Health Insurance Tax Relief Act of 2019 was introduced in the House of Representatives by Ami Mera, MD (D-CA). The bill would delay the annual fee until 2022. So far, it has not been passed, despite bipartisan backing for such a measure in both the House and the Senate and support from organizations such as America’s Health Insurance Plans (AHIP).
“Suspending the health insurance tax (HIT) will help drive down premiums and costs for tens of millions of Americans who get coverage through their jobs, buy their own coverage, or are covered through Medicare Advantage plans or Medicaid managed care,” Matt Eyles, president and CEO of AHIP, said in a statement at the time.
BMA echoed that sentiment.
“Better Medicare Alliance urges Congress to act as soon as possible to suspend the health insurance tax for 2020 to protect Medicare Advantage beneficiaries from increased health care costs and provide stability for providers,” BMA said in a fact sheet. “Repeal of the HIT would prevent the increase in the cost of health coverage and preserve access to valued care for seniors, the disabled, and low-income beneficiaries in Medicare Advantage.”
So far, like the House bill, the Senate has not passed the Health Insurance Tax Relief Act, though it has been read twice on the floor and referred to the Committee on Finance. Stagnancy on this issue may change soon with Congress back in session from summer break and healthcare at the forefront of their agenda.
Editor's Note: This article has been corrected to reflect the Better Medicare Alliance's estimates of the health insurance tax's impact based on their August 2019 fact sheet. Medicare Advantage and Medicare Part D beneficiaries are anticipated to shoulder over 25 percent of the tax (as opposed to 20 percent in 2018's estimate) and $241 for a single Medicare Advantage beneficiary (no longer $500 for an MA couple).