By Chris Carlson, FSA, MAAA, Glenn Giese, FSA, MAAA, David Yip, FSA, MAAA
Section 9010 of the Patient Protection and Affordable Care Act (Pub L. 111-148) and the Health Care and Education Reconciliation Act (Pub L. 111-152), collectively “the ACA,” imposed fees on insurance companies that offer fully-insured health insurance coverage. The fees, which were treated as taxes under the Internal Revenue Code, were assessed on earned health insurance premiums, with certain exclusions.
In December 2019, Congress voted to permanently repeal the insurer tax effective January 1, 2021. This report provides an analysis of the reduction in premiums that result from the repeal of the tax beginning in 2021. In addition, we provide the allocation of these savings across each state and line of business and describe the number of individuals whose premiums are likely reduced due to the repeal of the tax on health insurance.
The taxes on health insurance were non-deductible for federal tax purposes for health insurers. Therefore, for each dollar assessed and paid in taxes, more than a dollar in additional premiums was collected (e.g., $1.27 for every $1.00 in taxes, assuming a 21% federal corporate income tax rate) yielding a total premium reduction in 2021 of as much as $20.4 billion. In total, the reduction in premiums is projected to be over $270 billion over the ten-year period from 2021 to 2030.
In summary, we estimate that the tax on health insurance would have increased premiums in 2021 by 2.2%. The elimination of the tax equates to annual savings during 2021 of $193 per individual in the non-group market, $161 per single contract and $502 per family contract in the small group market, $169 per single contract and $495 per family contract in the large group market, $255 per Medicare Advantage member (including Special Needs Plans and Employer Group Waiver Plans), and $156 per Medicaid managed care enrollee.
Over the next ten years, the savings are $2,454 per individual in the non-group market, $1,991 per single contract and $6,190 per family contract in the small group market, $2,080 per single contract and $6,104 per family contract in the large group market, $3,245 per Medicare Advantage member, and $1,943 per Medicaid managed care enrollee. Furthermore, we estimate that about 137 million consumers and/or their plan sponsors (in the case of Medicaid and subsidized exchange plans) are likely to see lower premiums in 2021 because of the repeal of the tax on health insurance.
The opinions and conclusions expressed herein reflect technical assessments and analyses, and do not reflect statements or views with respect to public policy.
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