Businesses Threatened By Raft Of New ObamaCare Taxes

As 2014 dawns, ObamaCare’s most disruptive changes to the health care system are just now getting under way. For American businesses, that means a raft of new taxes that will pose devastating consequences for their employees and the broader economy.

Paramount among them is a new tax on health insurers (HIT) that’s projected to “hit” them for more than $100 billion over the next decade. ObamaCare’s architects intended to eat into the margins of insurers with this levy — and even set it proportional to each company’s market share, so that bigger insurers pay more.

But the truth is that firms in every sector will pay it, as insurers will simply pass the tax along to employers in the form of higher premiums.

Indeed, premiums are expected to jump 2% to 3% over the course of this year thanks to this tax. By 2023, they could be about 4% higher.

These tax-fueled premiums hikes will hit small and midsize firms in particular.

Large companies can afford to self-insure thanks to the federal law ERISA — creating their own risk pools and directly paying employee health claims.

They may simply rely on a big-name insurer to serve as their third-party administrator (TPA) — processing claims and administering their plans. In fact, more than 80% of firms with 500 or more employees do just that.

But small firms and sole proprietors aren’t big enough to take on the risk of paying for their employees’ health care directly. Their patient pool isn’t big enough. One catastrophic claim — say, an employee who contracts cancer or has a stroke — could bankrupt the company.

So they rely on insurance providers to underwrite coverage for their employees. They’re “fully insured.”

Eighty-eight percent of the fully insured market is comprised of small businesses. And these are exactly the folks who will suffer premium shocks thanks to the new health insurance tax.

The international consulting shop Oliver Wyman estimates that this tax will increase small-business costs by $360 per employee this year alone.

These premium hikes will hamstring the ability of small firms to grow and hire. The National Federation of Independent Business predicts 250,000 lost jobs by 2021 due to the insurance tax, with 59% of those losses occurring among small businesses. The levy could shrink real GDP by up to $35 billion over the next decade.

The pain won’t be limited to business owners. Employees will have to deal with higher insurance costs, too. A recent study from former Congressional Budget Office chief Douglas Holtz-Eakin found that ObamaCare’s insurance tax will cost the average single person $2,100 in higher premiums over the next decade. The average insured family will pay an additional $5,000.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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