Insurers' 2014 Hikes Already Taking Toll

If you work for a small business, your next health insurance premium may give you sticker shock.

Many of the small-business and individual insurance policies are working the health reform law’s 2014 fees into their 2013 bills, contributing to double-digit premium increases for some people.

Continue Reading All those new consumer benefits packed into the health reform law — birth control without a co-pay, free preventive care and limits on when insurers can turn down a customer — had to be paid for somehow.

So the law’s drafters included a new tax on health insurers, starting at $8 billion in 2014 and increasing to $14 billion within four years, to help meet the new expenses. And insurers in 2014 will also have to pay a “reinsurance contribution” to cushion health plans that end up with a lot of sick customers under new rules requiring them to cover people with pre-existing conditions.

Some health insurance companies are getting a jump-start, passing on those 2014 fees to consumers in policies that start in 2013.

While insurance rates have been going up for years — and not all of the new increases can be pinned to the health law — the hikes will certainly give more fuel to Obamacare critics.

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Insurers say they have no choice but to increase premiums to cover those costs. But it’s hitting pocketbooks sooner than some people expected, and that’s causing controversy.

Everyone, even many of the law’s supporters, admit premiums are going to go up under the health law — although many people will get subsidies to help pay for coverage. Many of the costs — and the priciest benefits — were pushed beyond the 2012 election to 2014. But if the public revolts when they see 10 percent,15 percent or 20 percent rate hikes, already shaky support for the health law could suffer.

That means there’s a lot at stake for insurance companies and the law’s supporters when consumers see their health insurance bills.

The law’s backers have a history of using steep rate increases to garner public support for health reform — and against insurers. One turning point that helped the law’s passage was when Democrats blasted a 39 percent rate increase requested by Anthem Blue Cross in California in early 2010.

Now, insurers are being proactive, arguing the health law is driving the increase in prices.

“There’s a massive new health insurance tax that starts in 2014,” said Robert Zirkelbach, a spokesman for industry group America’s Health Insurance Plans. “For policies that are sold in 2013 and extend into next year, there’s going to be taxes imposed. … As a result, like all taxes, they will be reflected in premiums charged.”

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Don’t Believe The Media Hype: Obamacare Is Not Responsible For Double Digit Premium Hikes

Small businesses and individual health policy holders could face dramatic premium spikes this year, as some insurers file double digit increases and attribute the changes to the Affordable Care Act. The sticker shock is mostly the result of rising health care costs — and the prevalence of sicker beneficiaries in health insurance risk pools. The media, however, is blaming health care reform.

For instance, Friday’s Politico reported that premiums are increasing across the country as “All those new consumer benefits packed into the health reform law — birth control without a co-pay, free preventive care and limits on when insurers can turn down a customer — had to be paid for somehow.” Policy holders may experience 10 to 20 percent rate hikes, it warns, as insurers are “working the health reform law’s 2014 fees into their 2013 bills.”

So how much is Obamacare responsible for? Five, maybe eight percent? The answer is less than two.

Insurers are arguing that the costs of Obamacare’s annual fee on the industry, its requirement that companies contribute to a reinsurance program, and new benefits and regulations have to be passed down to consumers. “There’s a massive new health insurance tax that starts in 2014,” Robert Zirkelbach, the spokesman for America’s Health Insurance Plans told Politico. “For policies that are sold in 2013 and extend into next year, there’s going to be taxes imposed. … As a result, like all taxes, they will be reflected in premiums charged.”

There are new costs in 2014, but they have little to do with reform. Consider the insurers’ own rate justification filings, in which companies have to substantiate the raises. Aetna in Pennsylvania, for instance, seeks to increase rates by an average of 16.49 percent, but as it explains in its filing, 63.18 percent of the increase is attributed to the “cost of providing healthcare services to policyholders.” The Affordable Care Act is responsible for a tiny portion of the increase:

Impact of New Taxes and Fees

The Affordable Care Act (ACA) includes several new taxes and fees payable in 2014, including two that specifically apply to insured products — the health insurer fee and the reinsurance contribution. These new fees result in additional costs and are reflected in our updated rates for policies that extend into 2014. The overall impact of these costs on this filing is as follows:
* Health Insurer Fee: 1.0%
* Reinsurance Contribution: 0.5%

Washington & Lee Law School professor Timothy Jost predicted that “insurers in the individual market will benefit substantially from reinsurance payments” and will be “spared some administrative costs-notably the cost of underwriting which should be quite substantial.” ” The cost of new benefits should not be a big deal,” he continued, since “most of the costs of health insurance are for inpatient, outpatient, physician, lab, radiology, and pharmaceuticals, which virtually all insurers now cover.”

“I suspect that what is going on is a combination of legitimate concern about new costs, overestimation of what those costs will be and underestimation of offsetting savings, taking a chance to attack the ACA, and grabbing the opportunity to make some profit,” Jost added.

The Affordable Care Act reforms the individual health care market and allows businesses and individuals to take advantage of large risk pools by purchasing coverage through state-based health care exchanges. Over time, insurers will see an influx of new customers, many of whom will benefit from the law’s tax credits and will see their health care bills decrease.

In the short term, however, regulators must remain vigilant. As Sarah Lueck, of the Center for Budget and Policy Priorities (CBPP), told ThinkProgress, “The question of whether these increases are justified is something that regulators should closely scrutinize.”

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Obamacare Tax Hikes May Just Be Getting Started

New taxes are coming Jan. 1 to help finance President Barack Obama's health care overhaul. Most people may not notice.

But they will pay attention if Congress decides to start taxing employer-sponsored health insurance, one option in play if lawmakers can ever agree on a budget deal to reduce federal deficits.

The tax hikes already on the books, taking effect in 2013, fall mainly on people who make lots of money and on the health care industry. But about half of Americans benefit from the tax-free status of employer health insurance.

Workers pay no income or payroll taxes on what their employer contributes for health insurance, and in most cases on their own share of premiums as well.

It's the single biggest tax break the government allows, outstripping the mortgage interest deduction, the deduction for charitable giving and other better-known benefits.

If the value of job-based health insurance were taxed like regular income, it would raise nearly $150 billion in 2013, according to congressional estimates. By comparison, wiping away the mortgage interest deduction would bring in only about $90 billion.

"If you are looking to raise revenue to pay for tax reform, that is the biggest pot of money of all," said Martin Sullivan, chief economist with Tax Analysts, a nonpartisan publisher of tax information.

It's hard to see how lawmakers can avoid touching health insurance if they want to eliminate loopholes and curtail deductions so as to raise revenue and lower tax rates.

Congress probably wouldn't do away with the health care tax break, but limit it in some form. Such limits could be keyed to the cost of a particular health insurance plan, the income level of taxpayers or a combination.

Many economists think some kind of limit would be a good thing because it would force consumers to watch costs, and that could help keep health care spending in check.

Obama's health law took a tentative step toward limits by imposing a tax on high-value health insurance plans. But that doesn't start until 2018.

Next spring will be three years since Congress passed the health care overhaul but, because of a long phase-in, many of the taxes to finance the plan are only now coming into effect.

Medicare spending cuts that help pay for covering the uninsured have started to take effect, but they also are staggered.

The law's main benefit, coverage for 30 million uninsured people, will take a little longer. It doesn't start until Jan. 1, 2014.

The biggest tax hike from the health care law has a bit of mystery to it. The legislation calls it a "Medicare contribution," but none of the revenue will go to the Medicare trust fund.

Instead, it's funneled into the government's general fund, which does pay the lion's share of Medicare outpatient and prescription costs, but also covers most other things the government does.

The new tax is a 3.8 percent levy on investment income that applies to individuals making more than $200,000 or married couples above $250,000. Projected to raise $123 billion from 2013-2019, it comes on top of other taxes on investment income.

While it does apply to profits from home sales, the vast majority of sellers will not have to worry since another law allows individuals to shield up to $250,000 in gains on their home from taxation. (Married couples can exclude up to $500,000 in home sale gains.)

Investors have already been taking steps to avoid the tax, selling assets this year before it takes effect.

The impact of the investment tax will be compounded if Obama and Republicans can't stave off the automatic tax increases coming next year if there's no budget agreement.

High earners will face another new tax under the health care law Jan. 1. It's an additional Medicare payroll tax of 0.9 percent on wage income above $200,000 for an individual or $250,000 for couples. This one does go to the Medicare trust fund.

Donald Marron, director of the nonpartisan Tax Policy Center, says the health care law's tax increases are medium-sized by historical standards. The center, a joint project of the Brookings Institution and the Urban Institute, provides in-depth analyses on tax issues.

They also foreshadow the current debate about raising taxes on people with high incomes.

"These were an example of the president winning, and raising taxes on upper-income people," said Marron. "They are going to happen."

Other health care law tax increases taking effect Jan. 1:

A 2.3 percent sales tax on medical devices used by hospitals and doctors. Industry is trying to delay or repeal the tax, saying it will lead to a loss of jobs. Several economists say manufacturers should be able to pass on most of the cost.
A limit on the amount employees can contribute to tax-free flexible spending accounts for medical expenses. It's set at $2,500 for 2013, and indexed thereafter for inflation.

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