This month, consulting firm Oliver Wyman released a new study revealing that surprise, surprise health insurance premiums will increase by several thousand dollars over the next ten years.
Thats bad enough news for consumers. Even worse? The study only looked at the cost impact of Obamacares new tax on health insurance premiums. Add in all the other cost-inflating provisions of the healthcare law and the long-standing trend of increasing health insurance premiums and the price of a family health insurance policy is expected to double over the next decade.
Repealing the premium tax represents a simple way for Congress to arrest this looming growth in the cost of health insurance. Our legislators should act accordingly.
The premium tax takes effect in 2014, when the insurance industry will be hit with an $8 billion bill. By 2018, the annual tax tab will reach $14.3 billion. Between 2014 and 2019, the tax will amount to $73 billion. After that, the size of the levy will be based on how fast insurance premiums rise.
Oliver Wyman isnt alone in its assessment of the cost impact of the premium tax. The Congressional Budget Office told lawmakers the tax would largely be passed through to consumers in the form of higher premiums for private coverage.
The congressional Joint Committee on Taxation has also stated that the tax will raise the cost of the average familys health insurance premium anywhere from 2 to 2.5 percent. Former CBO Director Douglas Holtz-Eakin pegs the taxs impact at 3 percent, or an increase of $5,000 per family over a decade.
The Oliver Wyman analysis provides a bit more detail. The increase in premiums over a 10-year period for single coverage will run between $1,900 under the lower-end estimate and $2,400 under the higher-end estimate. For family policies, the increase over a decade will range between $4,500 and $5,700.
The tax will also have a profound impact on employers. Small businesses will see a significant increase in costs. For single coverage, the Wyman analysis finds that small employers will have to pony up between $2,400 more on the low end and $3,100 more under the higher-end estimate. Family coverage costs for small employers will increase between $6,000 and $7,700.
Big corporations wont escape unscathed, either. Large employers will see single coverage costs rise between $2,300 and $2,900 over a decade. And costs for family premiums will actually go up more than for small business, with increases ranging between $6,200 and $8,000.
Its hard enough for those that are gainfully employed to keep up with insurance premium increases and thats without the new tax. But what about seniors on fixed incomes?
According to the Oliver Wyman analysis, the average expected increase in the cost of Medicare Advantage coverage is $3,590 over ten years. By 2023, some seniors could be paying an extra $42 a month for health insurance, thanks to the new tax.
The premium tax also threatens to further strain state budgets, whose largest cost is generally Medicaid. Over the ten-year window analyzed, the tax is expected to increase the average costs of Medicaid coverage by about $1,530 per enrollee. Any increase in Medicaid costs could lead to higher state taxes.
The premium tax also threatens to make our current economic problems worse. Stagnant wages are holding back consumer spending and thus hurting the demand side of the economy. Any serious plan for economic recovery must therefore encourage wage growth.
Right now, Americans are working harder and harder for less money. In inflation-adjusted dollars, theyre making slightly less in hourly wages than they did in 2002. And yet, the Bureau of Labor Statistics reports total compensation which measures wages and benefits is up 2.8 percent over last year.
If employers are paying out more to employees and not taking home a bigger paycheck, wheres all that extra money going? According to Case Western Reserve University economist Scott Shane, Health insurance has sucked up two-thirds of the increase in employee compensation over the last decade.
In other words, the growing cost of health insurance is depriving Americans of raises. The premium tax will only exacerbate this phenomenon.
Americans want affordable health coverage and economic recovery. Congress can deliver on those goals by scrapping Obamacares tax on health insurance premiums and eventually repealing the entire law.