Uncategorized

Taxing Health Insurance Companies to Pay for Health Care

The Congress has investigated about every conceivable way to tax people to pay for the health care proposals—a millionaire’s tax, bigger taxes on home mortgages and charitable contributions, and a couple of dozen more ideas.

Now Congress looks to be the most interested in taxing insurance companies to pay for a big chunk of their health care proposals. The new taxes would come in two parts––a 35% excise tax on any health benefit cost above an $8,000 single and $21,000 family annual premium as well as a flat $6 billion annual tax on the industry to be allocated among the companies proportionate to their premium.

There is certain logic to this. Taxing high priced benefits could help deflate the health care economy. Taxing all of the health insurance companies that stand to get more than a $1 trillion in new business—most of it in the from new private insurance and Medicaid subsidies and the rest from the consumer’s share of those new private plan premiums—seems fair at one level.

Calling for a tax on that big rich insurance company also sounds a lot better to the politicians than looking voters straight in the eye and raising their taxes directly.

But what is really going on here is that proponents of these insurance company taxes would just turn the health insurance industry into a new division of the Internal Revenue Service.

To paraphrase Leona Helmsley, insurance companies don’t pay taxes—at least taxes that are directly related to their health insurance policies, as these would be.

I have run a health insurance business. The insurance companies already pay taxes much like the ones being proposed. They are called state premium taxes. They tend to run about 2% of premium on fully insured business.

Do you know what the insurance companies do with these taxes? Since they are tied to premiums they pass them through directly to the policyholder who pays these premiums.

Will the 35% premium tax on high priced benefits apply only to very expensive policies? It will today but the caps would grow with inflation while health care premiums have been growing at about three times that. There is a reason this scheme develops far more revenue in the out-years—because more consumers will be trapped in the new tax not unlike what has happened to the Alternative Minimum Tax (AMT) over the years.

At any rate, whatever the tax, it will be passed through to those who pay the premiums. This is not a theoretical exercise. Taxes like this are what we call a premium load. You can load these costs as long as there are premiums available to load—loadings available.

What’s an “available loading?”

You.

You are available, as the customer, to have these costs passed right straight through as a load on the premiums you already pay. And, that is what the insurance industry has been doing with premium taxes for decades.

And, that is what insurers would do with these taxes. Not like insurance premiums are affordable in the first place.

If this scheme survives, the insurance industry would be a very valuable division of the IRS!

Livongo’s Post Ad Banner 728*90

9
Leave a Reply

9 Comment threads
0 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
7 Comment authors
insurance policy onlinehealth insurance quoteHealth Insurance GuruinsuranceJack E Lohman Recent comment authors
newest oldest most voted
insurance policy online
Guest

Your blog is very much good. I am very much impressed by your blog content, i also come across number of sites for the health insurance for the travel insurance and medical insurance, you can also check these are also very much useful for everyone.

health insurance quote
Guest

It’s better that they have to pass the health insurance bill without increasing the tax. That will be beneficiary for ordinary people.

Health Insurance Guru
Guest

Everybody should be able to get health insurance. It is so important to be covered.

insurance
Guest

It is so important to have the right insurance for your needs. You really should do your research before you buy it!

Jack E Lohman
Guest

Tax them? No. Eliminate them? Yes.

jd
Guest
jd

Two observations I didn’t see above: 1. One of the values of a tax on rich benefit plans is that the value of the tax increases as the cost of healthcare goes up. So, if the cost of these plans increases at twice the rate of growth in GDP, so will the value of the tax. 2. More important, and unlike in the case of the AMT, having the tax go up disproportionately for rich benefit plans if health care costs increase faster than the general rate of inflation will create a pain point to increase the pressure to slow… Read more »

Hal Horvath
Guest

Worse, facing loss of patients (due to credit drying up)…many providers tend to want to just raise prices (fewer patients? ok, higher prices).
But this only exacerbates the essential problem: the high prices.

Hal Horvath
Guest

“Taxing high priced benefits could help deflate the health care economy.” You used an important word, at this moment in economic time: “deflate.” It is a certainty that the ‘health care economy’ will deflate, and few realize this yet. The problem is a significant part of the decades long health care inflation was supported by….credit/debt ramping up. In other words, the long, slow, giant credit bubble. That bubble is deflating, and health care prices will therefore…. react. Just like other industries that have high prices due to easy consumer credit, health care is now going to face a crunch as… Read more »

Nate
Guest
Nate

Robert have you or anyone actually seen a copy of this? All I can find are summaries of what they intend, I hope it is the people writing the summary and not the people writing the bill but it really sounds like they have no idea how insurance works in the country. It is clear they intend to include businesses like mine in the tax, Third Party Administrators. To keep it simple they say I will pay a 35% tax on any plans that cost more then $8000 single. That tax would come to $2800. Depending on what I do… Read more »