Your Premiums Are Taking a HIT Thanks To This Tax

Way back in 2009, when lawmakers were negotiating the Affordable Care Act, it was clear that it would cost a lot of money to pay out advanced tax credits, cost-sharing reductions and Medicaid fees for millions of newly covered people. So much money that the authors of the ACA were concerned enough to try and make the ACA revenue neutral.

The authors toyed with a lot of ideas, mostly accounting maneuvers, but they did put in a couple of very solid “revenue raisers” (i.e. taxes). These were designed to recapture money from health insurance companies that the federal government was going to invest in Advanced Premium Tax Credits for people who get their health insurance on healthcare.gov. The biggest new tax was a general assessment on every policyholder of a fully insured group or individual health insurance plan. It was called the Health Insurer Tax, or HIT.

The HIT is not like most taxes we are familiar with. Sales taxes are based on a percentage of the selling price of whatever you are buying. Property taxes are based on the value of your house. Income taxes are a sliding percentage of how much money you make.

But the HIT is not like any of those. It’s sort of a “bucket tax” for insurers that increases every year. It started out as an $8 billion assessment across the nation in 2014. In 2020, that number swells to $16 billion.

Here’s how HIT works

The federal government creates a fixed tax liability each year ($16 billion for 2020), then divides that liability up among all the health insurance companies that have fully insured customers, whether they are individual customers or group customers. The insurance companies are assessed a piece of the liability based on their national market share of fully insured business. Let’s say in 2020 an insurance company has a 1% national market share of fully insured members. That company would have to tax its policyholders enough during 2020 to raise an EXTRA $160 million to send to Washington, D.C., (1% of $16 Billion is $160 million) to satisfy its obligation under the ACA’s HIT. And that’s on top of medical costs, administrative costs and everything else. It’s a pure pass-through assessment on you, the healthcare consumer.

For the past few years, Congress has waived, or at least delayed the tax. They delayed around $14.5 billion back in 2017, for example. Now, Congress hasn’t yet spoken on the issue for 2020, and they are about to go on a recess, so I’m not encouraged that HIT will be waived again. But we don’t know. The result is that Blue Cross had to start building the tax into rates beginning with Jan. 1, 2020 renewals. A measurable portion of rate increases in 2020 will be to cover HIT.

There is still time for Congress to act on HIT, and we’ll let you know if they do. A few years back, they waived the tax AFTER they had let us collect it! We returned it to our members in the form of significant rate decreases between 2018-2019. Most rates in 2020, however, are going to go up because of HIT and normal medical cost trends. You’ll see it when you get your renewal, or shop for coverage on healthcare.gov during open enrollment.

Straight Talk is I wish I had better news for you. But at this time, we have to issue those Jan. 1 renewals, and HIT is the law of the land.