2013
What does a HIT, your health insurance premiums and 2% have in common?
You have heard it an endless number of times, the President refuses to raise taxes on the struggling middle class. I’m betting that we will not see higher “taxes” but that doesn’t mean the middle class won’t pay more no matter what you call it.
The Affordable Care Act includes (among other fees and taxes) a new health insurance tax (HIT) on insurance companies. That tax applies to their insured book of business which means mostly small groups and individuals. This tax raises billions of dollars each year.
But here is the point, these additional taxes will find their way into premiums, the premiums the middle class pays, mostly those who must buy individual coverage and coverage through a small group. The total tax will be $8 billion in 2014 and up to $14.3 billion in 2018. Over the next ten years the tax is expected to exceed $100 billion.
Individuals with good health insurance, privately or through an employer tend to direct their wrath for high premiums at insurance companies (even, based on my experience, when the plan is self-insured). Over recent years this misdirected ire has been heightened by political rhetoric using phrases like, “discriminatory practices, abuse, high salaries, high retention costs” and the ever-present “high profits” and “lack of competition”. All of this is bogus and is not and never has been the cause for high health care costs and the resulting higher premiums.
However, what you should really be concerned about is that rather than make the cost of health insurance better, through the various taxes and fees and the mandates for new coverage and changes in underwriting rules, we have made the cost of health insurance worse for the vast majority of Americans (and their employers … and that is a big concern or should be).
According to America’s Health Insurance Plans website:
“The Congressional Budget Office (CBO) has said that this tax will be “largely passed through to consumers in the form of higher premiums.” A 2011 analysis by Oliver Wyman estimates that this tax “will increase premiums in the insured market on average by 1.9% to 2.3% in 2014,” and by 2023 “will increase premiums 2.8% to 3.7%.”
Impact on individual market consumers: Increase premiums over a ten-year period for single coverage by an average $2,150, and for family coverage an average $5,080.
Impact on small employers: Increase premiums over a ten-year period for single coverage by an average $2,760, and for family coverage an average $6,830.
Impact on large employers: Increase premiums over a ten-year period for single coverage by an average $2,610, and for family coverage an average $7,130.
Impact on Medicare Advantage beneficiaries: Increase costs $16 to $20 per member per month in 2014 and will increase to between $32 and $42 by 2023. The average expected increase in the cost of Medicare Advantage coverage over ten years is $3,590.
Impact on Part D beneficiaries: Increase average premiums by $9 in 2014 and by $20 in 2023 for a total increase of $161 over ten years
Impact on Medicaid managed care beneficiaries: Increase the average costs of Medicaid coverage by about $1,530 per enrollee between 2014 and 2023.
There is talk these days about moderating health care costs based on trends for the last several years. Hope springs eternal, but the reality is that we have a long way to go to change the health care delivery system. In the meantime there are numerous new cost drivers added to the system, to insurance companies and to employers that will add to the cost of health insurance.
QUINNSCOMMENTARY 
This is only one tax of many. Expect to see a massive new burden apply to employer-sponsored plans and their participants as a result of health care reform – it is implicit in how PPACA is financed. Consider the three-pronged attack of PPACA on employer sponsored plans – why I am predicting a return to double digit inflation for all employer-sponsored plans, insured or self-insured for years after 2014.
First, the new taxes and fees, PCORI, transitional reinsurance, medical devices, brand name prescription drugs, health insurers, etc. Other new “costs” intended to fund PPACA coverage expansions also fit in this category – the cost shift from reducing Medicare reimbursements by $720B over 10 years, as well as the long delayed reduction in Medicare reimbursements from the Sustainable Growth Rate adjustments that are baked into the PPACA projections. All of these costs will land disproportionately on employer-sponsored plans because you can’t expect the government to raise reimbursement rates on Medicare and Medicaid services for these new taxes – even though older Americans (and those receiving Medicaid) would receive the majority of those services subject to the taxes – given the concurrent provisions in PPACA to specifically reduce reimbursement rates.
Second, in the next five or so years, the projections are that we will add mayby 15 MM Americans to Medicaid and demographics confirm we will add 3 – 5 million per year to Medicare … where both programs have reimbursement rates that currently do not cover the cost to providers to deliver services. The last study I saw was by Milliman in 2008, where they concluded that Medicare reimbursements, on average, covered 90% of the cost to deliver services, while Medicaid reimbursements, on average, only covered 69% of the cost to deliver services. The massive expansion in enrollment in these programs, coupled with reductions, not improvements in reimbursement rates for providers, should trigger a reaction by providers seeking higher fees for those who are not protected by government limitations – triggering a massive cost shift.
Third, we have already seen a massive decline in the proportion of non-elderly Americans covered under employer-sponsored plans – declining from 66% in 2000 down to 55% in 2010 (based on the Current Population Survey, as stated in recent EBRI studies). All benefit professionals expect that trend to worsen, some dramatically, as employers (particularly the 33% of small employers with less than 50 employees (based on the 2010 Census) who offer coverage today, respond to PPACA.
So, you have increased taxes, more cost shifting and fewer plans and participants to bear those costs… a recipe for double digit inflation for those employers who maintain their health coverage for years after 2014.
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Some very good observations.Dick mentioned in an recent article about health care costs moderating in the past 5 years or so. You are predicting much higher costs coming down the road after 2014. Do the major health plans and consultants agree with your prediction? This should be evident in their cost projections for employers that they are doing right now for 2014.What are you seeing in the marketplace ?
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All are focused on 2014 employer shared responsibility rules.
My “stock” HCR presentation ends with these predictions and the suggestion that HR/benefits leaders remember to caveat their recommendations for 2014, that 2014 will not be 2015 and 2015 will not be 2016! So, health reform compliance, which to date has been “once and done”, specific changes, etc., will become much more stratategic in the future, and perennial in timing. What worked in 2014 won’t likely work in 2016.
We are talking about $1.3T in new taxes and $720B in Medicare reimbursement cuts over the next ten years. If not employer-sponsored plans, who will shoulder the burdens of increased spending in exchanges, Medicaid and Medicare? Obviously, not the beneficiaries of those programs. Consider … do PCORI and Transitional Reinsurance fees apply to Medicaid and Medicare, or the exchanges? No, so, who will pay those fees. If they cut Medicare reimbursements, will phycicians and other providers operate their businesses at a loss, or will they try to recover those monies by shifting deficits from public programs to private employer-sponsored plans? If you have a different answer, or perhaps believe that $250+B of new/shift spend can be accommodated without triggering inflation in plans targeted to finance the expansion, let me know.
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I am always amazed when, in my health reform presentations to employers and employee’s alike, they are all surprised to find out that it is they who are expected to pay all of the costs to expand health care coverage through Medicaid expansion and the state based exchanged. One of my favorite quips is that, if all the assumptions are born out, yes, in fact, the health reform legislation will be budget neutral, it won’t increase the deficit, just not YOUR budget.
It is a perfect example of a number of old adages:
Don’t tax you and don’t tax me, tax that guy behind the tree, or
The best tax is the one I owe and you pay, or
I want the best health care coverage YOUR money will buy.
Move on, nothing to gawk at, nothing new here. Why are you complaining about increased taxes? Someone else will pay … that’s the lesson being taught over and over and over… remember, this is how elections are won, votes are “bought”. Bush II accomplished it with Medicare Part D, Obama with PPACA.
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Good points. These taxes will likely not impact us much when you consider the moderating Health Care costs that Dick has been mentioning recently.Based on recent studies Dick has quoted costs are not increasing as fast as we might expect. I see these taxes ,which do not affect self insured plans, as having minimal impact. Perhaps we will see more mid size and small employers going to self insured with stop loss coverages?
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Not so sure they won’t affect self-insured plans. They hit some insurers pretty heavy and they may affect admin fees for self-funded plans to help make up the loss.
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