Under the ACA, all insurers that offer fully insured health insurance must pay an annual fee – the so-called health insurance tax (HIT). The fees are based on insurance premiums and insurers’ tax is roughly proportional to their market share. The tax was designed to help fund the federal and state marketplace exchanges. In 2015, Congress approved a one-year moratorium on collecting insurer taxes for 2017. The moratorium is set to lapse in 2018 and insurers now face a $14.3 billion fee next year. To recoup the cost of the tax, insurers are expected to increase premiums.
Oliver Wyman Actuarial Consulting recently analyzed the projected impact of the HIT on health insurer premiums over the next 10 years and found that premiums are likely to increase 2.7 percent next year, and between 2.6 and 2.8 percent in subsequent years. The analysis also examined how the HIT would impact premiums on a state-by-state and market-by-market basis. A summary of the analysis is below. The full report is available here.
The ACA’s HIT applies to all insurers offering fully insured coverage, including plans sold via the on-exchange and off-exchange individual market, large and small group markets, and any insured public programs, including Medicare Advantage, Medicare Part D, and Medicaid Managed Care. The tax started at $8 billion in 2014 and increased to $11.3 billion for 2015-2016. In December 2015, Congress passed a one-year suspension of the tax, eliminating the tax for 2017.
With the moratorium set to expire for 2018, insurers are setting rates that will accommodate the $14.3 billion in additional fees. According to our analysis, the HIT will lead to a 2.7 percent increase in premiums in 2018 and up to a 2.8 percent increase in subsequent years, when the amount collected in taxes is mandated to increase at the same level as premium trend.