The More Businesses Learn About Obamacare, The More Reluctant They Are To Hire

Forbes.com
March 18, 2013

by Sally Pipes

Wondering why the unemployment rate has been near or above 8 percent for nearly four years? The Federal Reserve has an answer for you: Obamacare.

Earlier this month, the Fed released its latest “beige book”  – a monthly report on economic conditions across the country. The book noted that employers across the country have “cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff.”

The more businesses learn about the president’s health reform law, the more they’re coming to realize that “affordable care” is the last thing it will provide. And that’s in large part due to the multibillion-dollar tax that Obamacare is set to levy on health insurance companies.

Starting next year, insurance companies will have to remit $8 billion to the federal treasury. The tax climbs to $11.3 billion in 2015 and 2016, to $13.9 billion in 2017, and to $14.3 billion thereafter.

Insurance companies will pay based on their share of industry revenues in a given year — the more revenue, the bigger the hit.

And although insurers are responsible for paying it, there’s no question that the tax will “be largely passed through to consumers in the form of higher premiums for private coverage,” as the non-partisan Congressional Budget Office put it.

How much will premiums go up?  The Joint Committee on Taxation figures the tax will add between 2 percent and 2.5 percent to the cost of premiums.

But that estimate is probably too low. Former CBO director Douglas Holtz-Eakin figures that the premium tax will add 3 percent to the cost of family coverage over the next decade. And a study by consulting firm Oliver Wyman figures the tax will boost premium costs by as much as 3.7 percent a decade from now.

That means a family will pay a total of $5,000 more in premiums, and small businesses nearly $7,000, over the next 10 years.

Those are just averages. Individuals and businesses in some states will pay far more, according to Oliver Wyman’s research. Small businesses in West Virginia, for example, will have to deal with  more than $9,000 in added costs for a family plan over the next decade. Those in Nebraska will get hit with almost $8,000 in new costs.

Seniors and state governments will pay the tax, too.

The cost of the private Medicare Advantage plans that about a quarter of seniors currently enjoy is set to rise nearly $3,600 over the next ten years, thanks to the tax. In Florida, for example, seniors will pay an additional $4,000 in premiums.

Costs for the Medicaid managed care plans that cover nearly three-quarters of the program’s beneficiaries will rise by more than $1,500 per enrollee over the next decade.

Obamacare’s premium tax will also distort the insurance market by tilting the playing field heavily against for-profit insurance companies like WellPoint, UnitedHealthcare, and Aetna.

Unlike just about every other tax they pay, for-profit insurers won’t be able to deduct the premium tax from their earnings. So a good chunk of their income will effectively get taxed twice — once to satisfy Obamacare’s premium tax, and then again when they pay the corporate tax. That means they’ll have to raise premiums even higher.

Non-profit insurers don’t pay income taxes, so they won’t face this double whammy when paying the premium tax.

What’s more, the law exempts non-profits that do 80 percent or more of their business with the government from the premium tax altogether. That gives non-profits an even bigger leg up against their for-profit competitors.

And it’s not as if non-profit insurers are barely scraping by. Blue Shield of California, for instance, had reserves of $3.9 billion in the last quarter of 2012.

Several groups that largely represent small businesses — including the National Federation of Independent Business, the National Retail Federation, the Chamber of Commerce, and the American Farm Bureau Federation — have called for repeal of this tax. And earlier this year, in a rare show of bipartisanship in Washington, Louisiana Republican Charles Boustany and Utah Democrat Jim Matheson introduced a bill in the House that would repeal the tax before it has a chance to take effect.

That’s the right call. Scrapping Obamacare’s burdensome and misguided premium tax would put money back in the pockets of American businesses — money they could use to keep the nation’s unemployment rate a whole lot lower than the 8 percent of the last four years.

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