Bloomberg News

Health Premium Tax Will Boost Coverage Costs, Insurers Say

November 09, 2011

(Updates with comment from consumer advocate in 10th paragraph.)

Nov. 3 (Bloomberg) -- Health insurance premiums for people buying coverage through small-employer markets will increase by as much as 3.7 percent, or $3,100, over 10 years as a new tax takes effect in 2014, a study by U.S. insurers found.

The analysis by America’s Health Insurance Plans, a trade group, shows the new tax on insurers would be passed onto consumers and boost premiums for individuals and families, as well as seniors and the disabled who participate in Medicare Advantage plans and the government’s prescription drug program.

U.S. health regulators and a consumer group dismissed the conclusions as “fundamentally flawed,” saying the study examines only one provision of the 2010 health-care law, while ignoring others designed to lower costs and boost transparency. Past analyses by the Congressional Budget Office predicted new insurance industry fees would be passed to consumers, but didn’t calculate the amount.

“When reform is fully implemented, insurance companies will have 24 million new customers,” said Erin Shields, a spokeswoman for the Department of Health and Human Services. “But this report assumes this provision of the law is passed on full to the purchasers of insurance. If insurance companies insist on sticking consumers with bigger bills while their profits rise, they will be required to justify their actions to the public.”

Under the health-care law, new fees are imposed on insurance plan premiums and medical device makers beginning in 2014 to help defray the cost of expanding coverage to millions of uninsured Americans.

Cost Analysis

The analysis by management consulting firm Oliver Wyman Ltd. projects that for small-group coverage, the fees will increase premiums for individuals about $2,760 on average and about $6,830 for families over a 10-year period. An AHIP survey released in July found that about 5 million Americans covered under small-group plans paid an average monthly premium of $426 for single coverage and $1,117 for families in 2010.

More than a quarter of private sector employees, or 29.8 million people, work for companies of fewer than 50 workers that might purchase insurance in the small-group market, according to federal health data. Only 39 percent of those companies offered coverage in 2010.

The CBO projected little change on average premiums in the small-group market as a result of the law because of the “net impact of many, relatively small changes, some of which would tend to increase premiums and some of which would tend to reduce them.”

Americans Struggling

  A Washington-based advocacy group assailed insurers for suggesting they will pass along tax costs to consumers and businesses.

“At a time when Americans are struggling to make ends meet, this threat is the kind of reprehensible behavior from big corporations that has driven Americans into the streets in protest,” said Ethan Rome, executive director of Health Care for America Now, a coalition of labor and civil rights groups that supports the law.

The insurance trade group is backing legislation to repeal the premium tax.

--Editors: Chris Staiti, Andrew Pollack

To contact the reporter on this story: Carol Eisenberg in Washington at ceisenberg1@bloomberg.net

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net


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