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.
In 2018, that translates to annual premium increases ranging from $165 to more than $500, depending on the enrollee and product. Projected increases include:
- $165 increase per person in the individual market
- $193 increase per person and $523 increase per family in the small group market
- $196 increase per person and $563 increase per family contract in the large group market
- $255 increase per Medicare Advantage member (including Special Needs Plans and Employer Group Waiver Plans)
- $195 increase per Medicaid managed care enrollee
Over the next 10 years, this equates to premium increases ranging from $2,376 per person in the individual market to $6,969 per family in the large group market; and $3,156 per Medicare Advantage member and $2,559 per Medicaid managed care enrollee.
The increase in premiums could lead to many negative outcomes, including:
- Increased cost-sharing and premiums for Medicare Advantage and Medicare Part D enrollees, due to increasing costs facing the Medicare Advantage and Medicare Part D programs
- Increased tax burden on small employers because fully-insured small employers are required to pay, while self-insured public and private employers are not
- Increased costs for states – and, subsequently, state tax payers – due to tax costs associated with Medicaid Managed Care enrollees
- Increase in the number of uninsured individuals and people who delay purchasing health insurance due to higher premiums
- Potential exacerbation of concerns related to “adverse selection” in the individual and small group markets as younger, healthier individuals forego coverage leading to a less stable risk pool and higher premiums
The impact of the premium increase will vary by state. People in Alaska, Wyoming, Vermont, New York, and North Carolina who buy insurance in the individual market will experience the largest premium increases in 2018, with increases that range from $386 in Alaska to $206 in North Carolina.
And when it comes to family enrollees in the large-group market, people in Alaska, New Jersey, New Hampshire, Connecticut, and Massachusetts will see the greatest increase in 2018, with increases that range from $661 in Alaska to $594 in Massachusetts.
See a state-by-state and market-by-market breakdown in the full report.