Under the Affordable Care Act (ACA), all insurers that offer fully insured health insurance must pay an annual fee – the so-called health insurance tax (HIT). The fees are based on insurance premiums and insurers’ tax is roughly proportional to their market share. The tax was designed to help fund the federal and state marketplace exchanges. In 2018, Congress approved a one-year moratorium on collecting insurer taxes for 2019. The moratorium is set to lapse in 2020 and insurers now face an estimated $16 billion fee in 2020. To recoup the cost of the tax, insurers are expected to increase premiums.
Oliver Wyman Actuarial Consulting recently analyzed the projected impact of the HIT on health insurer premiums over the next 10 years and found that premiums are likely to increase 2.2 percent in 2020 and in subsequent years. The analysis also examined how the HIT would impact premiums on a state-by-state and market-by-market basis. A summary of the analysis is below. The full report is available here.
The ACA’s HIT applies to all insurers offering fully insured coverage, including plans sold via the on-exchange and off-exchange individual market, large and small group markets, and any insured public programs, including Medicare Advantage, Medicare Part D, and Medicaid Managed Care. The tax started at $8 billion in 2014, increased to $11.3 billion for 2015-2016, had a moratorium in 2017, and was reinstated at $14.3 billion in 2018. In January 2018, Congress passed a one-year suspension of the tax, eliminating the tax for 2019.
With the moratorium set to expire for 2020, insurers will set rates that will accommodate the estimated $16 billion in additional fees. The fee collected is mandated to increase at the same level as premium trend from the end of the statuary fixed fee in 2018. According to our analysis, the HIT will lead to a 2.2 percent increase in premiums in 2020 and in subsequent years.
In 2020, that translates to annual premium increases ranging from $154 to $479, depending on the enrollee and product. Projected increases include:
- $196 increase per person in the individual market
- $154 increase per person and $479 increase per family in the small group market
- $158 increase per person and $458 increase per family contract in the large group market
- $241 increase per Medicare Advantage member (including Special Needs Plans and Employer Group Waiver Plans)
- $157 increase per Medicaid managed care enrollee
Over the next 10 years, this equates to premium increases ranging from $2,473 per person in the individual market to $5,824 per family in the small group market; and $3,052 per Medicare Advantage member and $1,988 per Medicaid managed care enrollee.
The increase in premiums could lead to the following:
- Increased cost-sharing and premiums for Medicare Advantage and Medicare Part D enrollees, due to increasing costs facing the Medicare Advantage and Medicare Part D programs
- Increased tax burden on small employers because fully-insured small employers are required to pay, while self-insured public and private employers are not
- Increased costs for states – and, subsequently, state tax payers – due to tax costs associated with Medicaid Managed Care enrollees
- Increase in the number of uninsured individuals and people who delay purchasing health insurance due to higher premiums
- Potential exacerbation of concerns related to “adverse selection” in the individual and small group markets as younger, healthier individuals forego coverage leading to a less stable risk pool and higher premiums
The impact of the premium increase will vary by state. People in Alaska, West Virginia, North Carolina, Arizona, and Wyoming who buy insurance in the individual market will experience the largest premium increases in 2020, with increases that range from $430 in Alaska to $254 in Wyoming.
And when it comes to family enrollees in the large-group market, people in Alaska, Wyoming, New York, District of Columbia, and Delaware will see the greatest increase in 2020, with increases that range from $496 in Delaware to $599 in Alaska.