Insurance Tax In Healthcare Law Could Cost States $15B

Groups on both sides of the healthcare debate are lobbying Congress to scale back a tax in President Obama's healthcare law that could end up costing the states billions of dollars.

Supporters and opponents of the healthcare law are both eyeing changes to the law's tax on insurance plans, which could cost the states nearly $15 billion.

The Affordable Care Act includes a new excise tax on insurance plans, and the tax applies to the privately managed Medicaid programs many states use. Taxing Medicaid managed care plans could force state governments to pay the tax.

The Republican Governors Association (RGA) raised the issue in a recent letter to congressional leaders, saying the tax "merits your urgent attention."

A report from the Milliman consulting firm estimated that the tax would cost state governments between $13 billion and $15 billion over the next decade.

Insurance companies have lobbied for years to repeal the insurance tax altogether, saying it will raise premiums across the board. The fee was included to help pay for the cost of expanding insurance coverage.

But RGA Chairman Bobby Jindal (R-La.) and Vice Chairman Scott Walker (R-Wis.) opened the door to a narrower option in their letter to lawmakers, asking only for Congress to exempt Medicaid and the Children's Health Insurance Plan from the tax.

"As Congress considers deficit reduction and tax reform, we urge you to amend (the Affordable Care Act) to exempt all Medicaid and CHIP premium revenue from this fee," they wrote.

Some of the law's supporters are also on board. The National Urban League is trying to build support for an exemption among other groups that support the health law's Medicaid expansion.

States that realize they'll bear new taxes on their Medicaid plans might be less inclined to expand the program, the Urban League said.

"We recognize that revenue mechanisms, including fees, are critical to achieve the savings that the ACA aims to accomplish," the group wrote in a letter to the National Council of La Raza. "However, due to the possibility that the fee may restrict the ability of states to expand their Medicaid programs through insurers that provide Medicaid and CHIP coverage, we believe that an exemption for these plans should be considered."

At least for now, the lobbying push around the health insurance tax remains focused mostly on full repeal. Joe Moser, director of government affairs for the Medicaid Health Plans of America, said his organization is not lobbying for an exemption, but rather is still focused on full repeal.

A narrower exemption could also be a hard sell for large insurance carriers. The insurance tax is structured as a flat fee — it has to raise a certain amount each year — so carving out Medicaid managed care plans would raise the tax burden for other insurance plans.

Nevertheless, Democrats have shown an increasing willingness to modify the healthcare law now that its basic survival has been assured. 

A non-binding measure to repeal the law's tax on medical devices won overwhelming bipartisan support in the Senate last month, and the White House has agreed to cut funding for certain programs as part of various spending and deficit-reduction bills.

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