Insurance Tax Cost Shift All But Certain

New tax to expand coverage to children and low-income adults will have everyone paying higher premiums

July 15, 2009 -- Employers will definitely feel the pain of an insurance tax that will help raise more than $115 billion to cover 115,000 uninsured children and low-income adults in Oregon over the next four years.

All of Oregon’s health insurance companies intend to pass along that tax to their policyholders starting Oct. 1. Those discussions occurred when Rep. Mitch Greenlick (D-Portland) proposed his health reform measures (House Bills 2009 and 2116) in conversations with insurance executives.

“It’s not a very transparent tax because it falls on the backs of people who are doing the right thing,” said Jack Friedman, CEO of Providence Health Plans. “A broad-based tax would be much fairer.”
Self-insured companies such as NIKE won’t have to pay the tax because of federal ERISA pre-emption laws, which tilts the balance even more tightly to the commercial marketplace. 
Ken Provencher, president of PacificSource Health Plan, acknowledged the insurance tax isn’t a long-term solution. Earlier he was quoted as saying, “This tax is reflective of the fact that we’ve got some issues in the whole system… I think it’s essential that we find a way to provide universal coverage. You have to be honest about what it’s going to cost, and where the money is going to come from.”
He indicated a desire to collaborate with legislative and business leaders, hospitals and other to find sustainable solutions to cover the uninsured.
Earlier Health Net announced its opposition to the insurance tax.
Greenlick firmly believes the insurance tax will “ultimately reduce insurance premiums or at least premium increases.” Right now, he said, 10 percent of the insurance premium goes toward the cost shift. “Bringing $1 billion of federal funds into the healthcare system will definitely reduce the need for the cost shift. Consequently reducing that 10 percent down to 6 or 7 percent will absolutely reduce future rate increases and more than offset the cost of the premium tax.”
Hospitals will also be taxed to expand Medicaid access to uninsured Oregonians over the next four years. However the 26 hospitals paying that tax have a built-in guarantee – they’ll recoup their tax revenue from federal matching funds. It remains to be seen whether hospitals will attempt to cost shift by charging higher premiums to employers.

Approximately $11 million of the $1 billion federal funds will be used to run the Healthy Kids program. The majority of that revenue will be spent on a marketing campaign, including community grants.

Click here for further stories about the provider and health insurance claims tax.