Obamacare Tax Driving Small Business Health Premium Increases
by TJ Reilly
Oregon Small Business Association
On June 2nd, Oregon health insurers that sell small group plans are required to file their proposed rate increases for 2015. In a health care market beset by regulatory and provider volatility, these filings are now required reading for small businesses that offer insurance to employees. Why? Because we continue to see rapid increases in health care premiums, the cost of which comes right out of our bottom line.
The early signs for 2015 rates in other states are not encouraging. Two weeks ago, Washington State companies filed for an average rate increase of 9.6% while Virginia filed for 11.7%. Some have tried to spin these double-digit increases as positive news, noting that in past years premiums have increased by as much as 20%. I assure you, however, that if you are paying these bills you are not celebrating a 10% annual increase on an expensive product you’re providing to each of your workers. So what’s still driving these double-digit increases? While industry experts give a lot of reasons, there’s one new tax that has received little attention: the Health Insurance Tax (HIT).
The small business community has consistently said that controlling the increasing costs of health insurance premiums is their No. 1 concern and should be the focus of health reform legislation. But the HIT, passed as part of Obamacare, raises the cost of small business health insurance premiums by levying a $145 billion tax on health insurance companies over the next 10 years. According to the Congressional Budget Office, this tax is almost entirely passed on to consumers in the fully insured marketplace, where almost all small businesses and the self-employed purchase their coverage. This tax on small business owners raises insurance costs for already struggling small businesses and is contrary to the goals of health care reform.
Large businesses, which typically self-insure, will escape the cost impact of the HIT. Most small business owners do not self-insure because they do not have a large enough pool of employees. Instead, small employers purchase health insurance in the fully insured market. The only insurance plans that factor into the equation for purposes of determining the insurance company’s portion of the HIT are fully insured plans—the plans that 88 percent of small business owners purchase. And the HIT will drive up costs. According to Congress’ Joint Committee on Taxation, it will cost an estimated $400 in additional premiums to cover an employee and his family by 2016. That’s real money for a small business.
Health industry analysts often focus on complex actuarial impacts like the relative health and age of insurance pools when evaluating cost increases. Sometimes, however, the calculation is very simple. When you add a huge new tax on insurers those costs are going to simply trickle down to their consumers. In the case of the Health Insurance Tax, there’s a clear linkage that is going to drive health costs higher for every small business. Congress, which claims to want to help small businesses, ought to repeal it.
TJ Reilly is President of the Oregon Small Business Association.