Consumers Unlikely to Notice Federal Insurance Tax Relief

The repeal of the individual mandate is expected to sabotage the market and cause rates to climb higher than any reduction from the repeal of the health insurance provider fee for 2019.

The deal to reopen the federal government last week included a suspension of a national health insurance premium tax, but the quashing of the individual mandate in the Republicans’ massive tax cut last month will likely jack up 2019 premiums by a higher percentage than what consumers will save from the expiration of the insurance tax.

While the tax repeal could lower rates about 2.7 percent, the loss of the mandate to carry insurance is anticipated to increase rates 3.9 percent as an estimated 10,000 Oregonians drop out of the market, according to the Oregon Department of Consumer & Business Services.

The federal insurance tax, also known as the health insurance provider fee, was calculated based upon a set amount of money that the federal government wished to raise from insurers as opposed to a fixed percentage, and is set to raise $14.3 billion in 2018.

An analysis from Oliver Wyman Actuarial Consulting estimated the tax at about 2.7 percent across the industry, although Oregon filings from Moda Health and PacificSource for 2018 plans show it increasing those premiums only about 1 percent. The tax existed for the first three years of plans under the Affordable Care Act, but was suspended last year before being reinstated for 2018.

“It will save consumers some money but not an enormous amount,” said Jesse O’Brien, a health policy expert at the Oregon State Public Interest Research Group.

It also applied to Medicaid managed care organizations, although, because of the arcane rules, only three Oregon coordinated care organizations were forced to pay the tax -- Centene Corporation’s Trillium Community Health Plan in Eugene and the two PacificSource CCOs in central Oregon and the Columbia River Gorge.

These three plans cover about 162,000 of the state’s 1 million Medicaid members, and were taxed at a rate of about 10 percent, or $6.9 million. Here again, the tax is a small expense on the state Medicaid budget compared to the $104 million that all of the state’s CCOs must pay in the 2017-2019 budget because of Measure 101’s insurance taxes.

CCOs are held harmless from these taxes and their rates are increased to cover the fees.

The individual mandate, imposed in the form of a 2.5 percent income tax on people who refuse to buy health insurance when an affordable option is available, was designed to keep the individual health insurance market stable by nudging healthier, younger people to buy insurance despite few medical needs.

Given President Donald Trump’s public contempt for the tax penalty and uncertainty about its enforcement and continued existence, Oregon insurance regulators allowed health insurers to raise their premium rates between 2 percent and 5 percent from 2017 to 2018 to blunt the impact.

“We do think there will be an additional 3.9 percent increase in premium rates and another 10,000 people dropping out,” said Rick Blackwell, an insurance regulator at the Department of Consumer & Business Services. The Division of Financial Regulation will review proposed rates for 2019 in the spring and then fix the rates in the summer.

But the insurers’ potential losses because of a smaller, sicker insurance pool, at least for 2018, are undercut by the fact that the Oregon Health Insurance Marketplace set a new record for insurance signups, rising from 155,000 to 156,000, despite earlier forecasts that enrollment would drop significantly. “We were really really pleasantly surprised with the record enrollment,” marketplace administrator Chiqui Flowers told lawmakers.

O’Brien, from OSPIRG, noted that consumers who receive subsidies are unlikely to rush to the exits just because they no longer have a punitive tax over their heads. Their rates are fixed to their income and unlikely to rise significantly.

The rate increases to cover the loss of the mandate could, however, continue the bleeding of enrollments by people who earn too much money to qualify for federal subsidies. “A lot of these folks are already out of the market,” O’Brien said.

Rapidly rising pharmaceutical and medical costs may continue unabated, further wiping out the 2 percent to 3 percent savings consumers might see from the tax lift.

Reach Chris Gray at chris@thelundreport.org.

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