NCPA - National Center for Policy Analysis

New Medicaid Report Finds Health Reform Law Insurer Fee Costly to States

February 6, 2012

A new report from actuarial consulting firm Milliman, Inc. shows a provision of the health reform law intended to tax health insurance companies to help fund coverage expansions will be paid entirely by state Medicaid programs for the portion assessed to Medicaid managed care organizations, says PRNewswire.

The report concludes the cost to states is greater than previously thought, with one-sixth of the total fee being paid by Medicaid health plans.

  • According to the report, that fee, along with additional taxes paid due to the non-deductibility of the fee, will be entirely passed along to state Medicaid programs, costing $38.4 billion over the 10 year period 2014-2023 according to conservative moderate growth scenarios.
  • This will cost the states themselves about $13.6 billion and the federal government about $24.8 billion due to the state-federal Medicaid matching formula.

The Balanced Budget Act of 1997 and implementing regulations require Medicaid managed care payment rates to be actuarially sound, inclusive of medical costs, administrative costs, taxes and fees.  According to the authors, "The PPACA [Patient Protection and Affordable Care Act] health insurer fee is a cost that must be treated in a manner consistent with how premium taxes or other fees and assessments are now treated."  This means that due to federal law and rules, the fee must be paid by the state and federal governments through higher payments provided to plans, and results in the federal government taxing states and itself.

Source: "New Medicaid Report Finds Health Reform Law Insurer Fee Costly to States," PRNewswire, February 1, 2012. "PPACA Health Insurer Fee Estimated Impact on State Medicaid Programs and Medicaid Health Plans," Milliman, January 31, 2012.

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