A little-known provision of the Affordable Care Act has been stealthily contributing to higher health insurance premiums. It’s called the Health Insurance Tax, or HIT — and Congress is finally ready to do something about it.
Earlier this summer, a bipartisan House majority voted to suspend the HIT through 2021. Now it’s the Senate’s turn to act. Billions of dollars in insurance premiums for consumers are on the line.
Since the Affordable Care Act took effect in 2014, insurance companies offering conventional full-coverage policies have paid fees based on how much their premiums are. That includes employer-sponsored group insurance plans, individual plans on the Obamacare exchanges, and Medicare and Medicaid plans. The HIT served as an extra source of funding for the ACA.
Unfortunately, insurers simply pass the Health Insurance Tax along to individuals and employers in the form of higher premiums.
That’s particularly bad for small business owners, who can’t deduct HIT fees from their overall tax liability. Meanwhile, most Americans buying health coverage in the individual market have no idea that part of their premium is just a pass-through tax.
The HIT gets more burdensome every year. Fees from insurers totaled $8 billion in 2014 and $11 billion in 2015. Congress suspended the tax for 2017 and 2018. But if the federal government had collected the tax this year, the tab would have been over $14 billion.
There’s no doubt the HIT has increased premiums. The Kaiser Family Foundation estimates that the HIT inflated exchange plan premiums by two to three percentage points this year. According to an Oliver Wyman analysis, the tax accounted for $500 in annual premium costs for families obtaining coverage through an employer, $255 for those enrolled in Medicare Advantage, and $165 for people insured through the individual market.
Without relief from Congress, the HIT will drive up average individual premiums by more than $2,100 — and family premiums by $5,000 — over the next decade.
The HIT also knocks those least able to pay the hardest. Americans earning $10,000 to $50,000 a year pay more than half of the HIT.
Large businesses can escape the Health Insurance Tax by self-insuring, or paying employee medical bills directly. But that’s not an option for small businesses with fewer employees and volatile health care costs.
That’s a big reason why small businesses have faced skyrocketing premiums. From 2010 to 2015, seven in 10 small businesses reported premium increases of more than 20 percent.
The HIT will only continue harming small businesses, causing cuts in employee benefits and reduced hiring. According to one estimate, the HIT could put 163,000 workers at small businesses out of their jobs in the next ten years.
The House measure to suspend the tax for three more years, H.R. 6311, would offer some relief. The Senate should support it.
Better still, Congress should repeal the HIT once and for all. Doing so would be an easy way to lower Americans’ insurance premiums and protect the middle class.