Insurance Tax Could Cost States Billions

April 24, 2013

Over the next year, different pieces of the ObamaCare health care mandate will be implemented as the whole program is brought to fruition. Among the many provisions that are causing controversy is the tax on insurance plans, which could be costly for states, says The Hill.

  • The tax on insurance plans could cost the states as much as $15 billion.
  • The insurance plan tax acts as an excise tax that applies to the privately managed Medicaid programs many states use.
  • The responsibility to pay the tax on managed Medicaid plans could fall to state governments.

Milliman, a consulting firm, estimated that the tax would cost state governments between $13 billion and $15 billion over the next decade. Insurance companies say that the insurance tax on managed plans will raise premiums throughout the entire industry.

  • Insurance companies have lobbied to have the insurance tax completely repealed but the Republican Governors Association has instead pushed for an exemption for Medicaid and the Children's Health Insurance Plan (CHIP).
  • Even proponents of the law, like the National Urban League, support the Medicaid exemption because leaving the tax in place could discourage expansion of Medicaid.

Because of the Supreme Court's ruling, Medicaid expansion, as envisioned by ObamaCare, is now optional. For states considering expanding their Medicaid programs through insurers that provide Medicaid and CHIP coverage, incurring the additional costs of the excise tax could make expansion untenable.

  • To date, lobbying around the health insurance tax remains focused on full repeal rather than a narrow exemption.
  • The insurance tax is structured as a flat fee that must raise a certain amount each year, so exempting Medicaid or CHIP coverage would inequitably shift the tax burden to other insurance plans.

The political atmosphere is receptive to modifications of the ObamaCare mandate. Recently, a measure to repeal the tax on medical devices won support in the Senate and the White House agreed to cut certain programs from the Affordable Care Act. This suggests that exempting some insurance plans or repealing the insurance tax altogether is feasible.

Source: Sam Baker, "Insurance Tax in Health Care Law Could Cost States $15B," The Hill, April 17, 2013.

 

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