The Internal Revenue Service on Tuesday published a notice asserting that health insurance companies face a $15.5 billion tax bill in 2020 if the ACA’s health insurance tax resumes as planned.
The ACA created the tax, known as the health insurance industry fee, to fund implementation of the ACA’s marketplace exchanges. It’s an annual fee on health insurance providers based on premiums and a payer’s market share. Congress suspended it in 2019 because it was concerned that the tax would increase insurance premiums and out-of-pocket costs for consumers. But there is no plan to put a hold on it for 2020. Congress previously implemented the tax in 2018 and put a moratorium on it for 2017.
Insurance premiums are likely to rise by more than 2% in 2020 if the IRS implements the tax as planned, according to a 2018 analysis by Oliver Wyman Actuarial Consulting that was commissioned by UnitedHealth Group. The tax could also increase costs for Medicare Advantage and Medicare Part D beneficiaries, small employers and states. The analysis also warned higher premiums could spark lower enrollment in the exchanges and a larger uninsured population.
Medicare Advantage insurers are especially concerned about the tax because it will likely affect them the most. The MA market is very competitive compared with the individual market, so MA payers can’t pass on the tax’s cost to enrollees.
“Taxing healthcare coverage and benefits will have direct and dire financial consequences for millions of Americans by making health care and insurance coverage even more expensive,” an AHIP spokeswoman said in an email.
Insurers say that if the tax goes into effect in 2020, they won’t be able to invest as much in benefits or efforts to improve health outcomes.
Congress is considering bipartisan legislation that would suspend the tax through 2021, but it’s unclear when it might act.