Note: Click chart to the right to enlarge.
‘The logic behind this tax is that insurance companies will make money from increased enrollment due to the ACA, and therefore should pay more to the federal government. However, in order to remain in business, as well as to meet state and federal solvency and actuarial requirements, insurers will have to pass most of this tax along to policyholders in the form of higher premiums, or possibly higher average out-of-pocket costs or reduced benefits.
The form this tax takes makes it easy for the government to forecast its revenue. However, it is difficult or impossible for businesses to calculate the tax they will owe until well after the tax liability is incurred, in part because each insurer's tax liability depends not only on their own revenue, but on that of every other covered insurer in the country. In addition, certain types of health insurers are exempt from the tax.’
‘However, there is another effect not widely recognized. Most people enrolling through exchanges will receive a premium subsidy based on the difference between a specified percentage of their income, and a standard insurance plan (the second-lowest-priced silver plan available in their location for their family size). If the premiums are increased to pay the health insurance tax, the subsidies will automatically increase by the same amount – in effect, the federal government will be paying the tax to itself in the case of subsidized exchange customers.
This effect will partially apply in the case of those with fully insured employer-sponsored health plans. Because the premiums for employer-sponsored insurance are a form of compensation not counted as taxable income (regardless of whether they are allocated to the employer or the employee), the federal government will not collect personal income tax or FICA (payroll) tax on this amount. When the premiums increase to pay the health insurance tax, collections of income and payroll taxes will be reduced, on average, by the amount of the health insurance tax times the marginal tax rate of affected workers. This means that the federal government will be paying a portion of this tax (ranging from about 15 percent to about 40 percent, depending on the worker's income) to itself, though not the full amount as in the case of subsidized exchange enrollees.
In the case of Medicaid, CMS regulations[17] require that states pay premiums to Medicaid Managed Care Organizations (MCOs) that are “actuarially sound.” Because taxes and fees are necessary costs incurred by MCOs, they must be included in the determination of actuarially sound rates. As a result, MCOs will be fully reimbursed by the state and federal governments for the cost of this tax.[18]
In short, a substantial portion of this tax is simply transferred from the insured customer to the government, and back to the insured customer – and in the case of Medicaid, from government to government – with the insurance company serving as an intermediary in both directions. However, even in cases where there is no direct tax or budgetary impact, there will be administrative costs associated with the tax borne by both the government and the insurance companies. These particular administrative costs represent complete and unambiguous waste, as they benefit neither patients, providers, insurers, other taxpayers, nor the government.
The “annual fee” tax will, however, have its full impact on exchange enrollees without subsidies. This includes those not eligible for exchange subsidies – either because their employer offers individual coverage only,[19] or because their income exceeds four times the federal poverty level for their family size.’ - Impact of the Health Insurance “Annual Fee” Tax, Executive Summary, Robert A. Book, 02/20/2014
Link to the executive summary appears below:
http://americanactionforum.org/research/impact-of-the-health-insurance-annual-fee-tax
