November 14, 2018
What is the health insurance tax?
The health insurance tax (HIT) took effect in 2014. Under the HIT, the federal government taxes health insurance policies sold to individuals and small businesses as well as coverage for people enrolled in Medicare Advantage and Medicare prescription drug (Part D) plans. Tax receipts for the HIT will total about $93 billion through 2022—a cost ultimately paid by consumers through higher health insurance premiums.
Early this year, Congress passed legislation to suspend the tax for 2019. If it is reinstated in 2020, about 142 million consumers will face higher healthcare costs.
Small employers and individuals without access to employer coverage are the primary payers of the health insurance tax, and the burden grows over time. Those who work for larger employers that self-insure are exempt.
According to a recent analysis by actuarial firm Oliver Wyman, suspending the tax would provide immediate cost-savings of nearly $480 on average for families employed by a small business in 2020.
Are people enrolled in Medicare and Medicaid affected?
Oliver Wyman estimates that over a 10-year period, the HIT will raise the cost of Medicaid coverage by $1,998 per person. In 2020 alone, Medicaid costs would increase more than $435 million under the HIT.
Individuals enrolled in Medicare Advantage would benefit from a suspension of the tax in 2020 by saving more than $240 on average on their premiums.
Learn more about the health insurance tax here.