Health insurance tax would cost insurers $15.5 billion

A fee on health plans that Congress voted last year to suspend will cost the insurance industry $15.5 billion if it goes back into effect next year, according to an IRS analysis.

The Health Insurance Provider’s Fee was included in the Affordable Care Act to fund setting up state and federal ACA marketplaces. The fee is based on an insurer’s share of the market, which is calculated based on each insurer’s net premiums for the year.

Congress has had a fraught relationship with the tax, suspending it in 2017, allowing it to go back into effect in 2018 and then suspending it again in 2019. Unless Congress acts, it will go into effect again next year.

Related: Maryland seeks to tax insurers to protect ACA market

Supporters of the tax reason that it’s a sensible means of raising revenue to support the health system that the same insurers are using to generate profits.

Unsurprisingly, insurers are vehemently opposed to the tax. AHIP, the top insurance lobby group, warns consumers the tax will increase premiums by $7,000 over the next decade for families getting coverage from small employers.

“The health insurance tax is a $100 billion+ sales tax on health insurance that hits nearly everyone, increasing the cost of health coverage for individuals, small businesses, seniors, states, and taxpayers,” says AHIP on its website. “AHIP will continue to push for a full repeal of the health insurance tax because it makes health care less affordable for the very people who need the most help affording health care.”

Similarly, UnitedHealth commissioned an analysis by Oliver Wyman that concluded the tax would result in a 2 percent increase in premiums for policyholders.

While analysts expect health plans to pass the cost of taxes onto consumers, supporters of the tax hope that a competitive marketplace will force insurers to cut into profits, rather than raise premiums.

Earlier this year, S&P analyst Deep Banerjee told Modern Healthcare that competition was so fierce in the Medicare Advantage market that insurers will be reluctant to raise premiums, even if it means reduced profits.

Read more: 

• Insurers returning to pre-ACA profitability
• Is the end finally near for the ACA’s Cadillac tax?
• Spurned by budget bill, insurers look to higher premiums