Like many other products Texas consumers purchase like soft drinks, clothes, restaurant meals, computers, and furniture, health insurance will have a sales tax levied on it beginning January 1, 2014. The Affordable Care Act (ACA) imposed the “fee,” known as the Health Insurance Providers Fee, as a means of levying a broad-based tax on health insurance carriers to raise revenue to implement healthcare reform. ACA created the health insurance sales tax, which will be an annual fee charged to health insurance carriers. Congress understood by passing such a tax that the revenue generated would be paid by the consumer through higher premiums.
The tax is charged to health insurance carriers that sell health insurance coverage to individuals and employers, Medicare Advantage plans, Medicare Part D prescription coverage, Medicaid managed care and the Federal Employees Health Benefits Program. Dental plans will also be subject to the tax. The tax will not be charged to government entities or to employers that self-insure the health insurance coverage provided to their employees.
Allowances are made for small health insurance carriers and tax-exempt and nonprofit insurance carriers. The initial $25 million of premiums collected by carriers are not subject to the Health Insurance Providers Fee and the following $25 million of premiums are subject to half of the tax rate.
New Taxes Required to Fund ACA
The Health Insurance Providers Fee is one of 21 new taxes that were created in order to fund ACA. An example of these taxes, which will cost taxpayers $675 billion include, but are not limited to:
- A 2.3% excise tax charged on medical device manufacturers and importers;
- An annual tax on drug manufacturers and importers;
- A “Cadillac tax” on benefit rich health insurance plans that result in high-cost health insurance;
- The annual tax charged to health insurance carriers known as the Health Insurance Providers Fee.
Congress again acted to delay the HIT in 2018 for the 2019 calendar year after the IRS collected $14.3 billion and premiums increased for consumers across the U.S. Absent Congress stepping in, the HIT will return in 2020 to accommodate an estimated $16 billion in fees, or roughly 2.2 percent in premium increases.
The Joint Committee on Taxation estimates that the Health Insurance Providers Fee will generate tax revenue of over $100 billion during the next ten years. Tax revenue collected from the Health Insurance Providers Fee will exceed the tax revenue collected from the device tax and the prescription drug tax combined.
America’s Health Insurance Plans, the national trade association representing the health insurance industry, cites a 2011 study by Oliver Wyman that found the health insurance tax alone “will increase premiums in the insured market on average by 1.9% to 2.3% in 2014,” and by 2023 “will increase premiums 2.8% to 3.7%.”
A follow-up study by Oliver Wyman projected the aggregate taxes per policy to be collected in Texas between 2014 and 2023 would be $2,128 for an individual policyholder, $4,833 for family policyholders, $4,033 for Medicare recipients, and $1,346 for Medicaid managed care beneficiaries.
Benefits of ACA Justify New Tax
Supporters of the Health Insurance Providers Fee claim that the tax is appropriate because the ACA will be extending coverage to an estimated 25 million people. The fee is required to fund the expansion. Healthcare reform requires increased taxes to expand health insurance coverage that will benefit industries such as hospitals, laboratories, drug companies, and medical device manufacturers. Health insurance carriers fall into the category of beneficiaries and thereby should be subject to the tax. Only those directly benefiting from healthcare reform, such as individuals, families, small employers and Medicare Advantage enrollees will be subject to the tax. Groups such as self-insured employer groups, nonprofit groups that receive more than 80% of their gross revenue from the government and those individuals with disabilities will not be subject to the tax.
The Health Insurance Providers Fee paid annually by health insurance carriers to raise reve3nue to implement healthcare reform will result in higher premiums paid by the consumer. Texas health insurance carriers have announced that premium adjustments will be made in January 2020 to reflect the increased cost to the carrier.
STATESIDE CAN HELP!
Stateside Insurance Services, since 2003, has focused on providing comprehensive health insurance information, responsive customer service and expert industry knowledge for Texas consumers. Stateside has annually been recognized by health insurance carriers and the Health Insurance Marketplace as a Top Producer in Texas.
Whether the health insurance policy is for an individual, family, small business or supplemental Medicare coverage, Stateside dedicates the time, and our deep industry expertise, to ensure our clients have identified the best health insurance plan for their specific needs.
Stateside is available to answer any general questions regarding your coverage options, can provide a subsidy determination, and even assist in creating and submitting online applications for ACA compliant plans during an Open Enrollment or throughout Special Enrollment periods.
By using the Telephone Appointment System, clients can take advantage of scheduling a health insurance discussion when convenient for their schedule. During Open Enrollment phone appointment availability is expanded to include extended hours and weekends.