Health Insurance Tax: Raising Costs For Families, Small Businesses, Seniors, Taxpayers, And States

posted by AHIP

on May 9, 2017

Key Takeaways

HITIssueBrief_Artboard-01The health insurance tax hits nearly everyone, increasing the cost of health coverage for individuals, small businesses, and beneficiaries in public programs.


HITIssueBrief_Artboard-02Recognizing the tax’s impact on consumers’ health care costs, Congress acted to suspend the tax for one year, 2017.


HITIssueBrief_Artboard-03To ensure continued access to affordable health insurance coverage, it is important for Congress to take additional action to repeal the tax in 2018 and beyond.


HITIssueBrief_Artboard-04Bipartisan legislation would fully repeal the health insurance tax, providing immediate financial relief to those impacted.


Executive Summary

Beginning in 2014, the Affordable Care Act (ACA) imposed a tax that will exceed $156 billion over the next 10 years (2017-2026) on families, small businesses, seniors, states, and taxpayers, in what is essentially a sales tax on health insurance coverage. The tax started at $8 billion in 2014, increased 41 percent to $11.3 billion in 2015, and rises to $14.3 billion in 2018. In 2019 and beyond, the tax will increase annually based on premium growth.

Consistent with most forms of excise taxes, the Congressional Budget Office (CBO) wrote in 2010 that this tax will be “largely passed through to consumers in the form of higher premiums.” Actuarial analyses have found it negatively impacts consumers and employers that purchase coverage directly from a health insurance plan in the individual and employer markets, as well as beneficiaries in public programs like Medicaid and Medicare.

In December of 2015, recognizing the growing impact of the tax, Congress provided a one-year suspension of the tax in 2017. Suspension of the tax improved affordability for consumers who faced higher health care costs in 2017. Consumer savings will increase in 2018 if Congress provides further relief from this burdensome tax. However, under current law, the tax is slated to go back into effect next year.

Right now, health plans are finalizing their products for 2018 ahead of state and federal filing deadlines. If repeal or suspension of the tax for 2018 is not included in a legislative package before those filing deadlines, these 2018 products will have to factor in the cost of the health insurance tax. Actuarial analyses on the impact of the tax estimate that reinstatement in 2018 will raise premiums by an average of three percent. CBO has estimated the total dollar amount of the health insurance tax is $13 billion in 2018.

It is important for Congress to take swift action to suspend the health insurance tax into 2018 and beyond to continue to improve the affordability of health insurance coverage for millions of consumers. Allowing the tax to resume in 2018 would saddle consumers, small businesses, state Medicaid programs, and Medicare Advantage enrollees with higher health care costs.

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