New PRI Sudy Shows that Increased Federal Control of Health Insurance Plans Will Reduce States’ Tax Revenue

Nevada, Hawaii, New Mexico, South Dakota, and Georgia will see significant reductions in dollars available to fund Medicaid and State Children’s Health Insurance Programs

San Francisco, March 17, 2010 – Today the Pacific Research Institute (PRI), a free-market think tank based in California, released a first-of-its-kind report on the potential cost of increased federal control of health insurance. Taxing Health Insurance: How Much Do States Earn? by author John R. Graham, PRI director of Health Care Studies, provides state-by-state estimates of revenues from premium taxes on health-insurance policies.

“As the majority party continues to push health care reform through Congress, there is mounting concern from the public about its costs and consequences,” said Mr. Graham. “One consequence that has gone completely under the radar is the effect of increased federal control of health insurance on states’ revenues.”

Taxing Health Insurance finds that federal reform could cause more people to leave state-regulated private health insurance for either federally regulated private insurance, or government-run health plans. “This will result in reduced revenues for states charging premium taxes on state-regulated health insurance,” said Mr. Graham. “Such reductions could have devastating consequences since these revenues go into states’ general funds, and support safety-net programs such as Medicaid and SCHIP programs.”

Revenues from Health-Insurance Premium Taxes

The report analyzes premium-tax revenue from state-regulated health insurance in relation to states’ expenditures on Medicaid and the SCHIP to demonstrate the importance of these revenues to each state’s safety-net budget. These revenues are most important in Nevada, Hawaii, New Mexico, South Dakota, and Georgia, ranging from 12 percent to 32 percent of states’ Medicaid and SCHIP spending.

“At a time when many states are facing sharp budget deficits, it would be unwise to implement a federal program that could deteriorate even further states’ fiscal conditions,” said Mr. Graham. “More important, on the brink of health care reform, states should begin to report premium-tax revenues by line of insurance and not just in aggregate. This would allow for a more accurate evaluation of the consequences of a federal takeover of health insurance.”

“As the federal government reaches deeper into states’ pockets, this report should serve as a call for greater transparency and accuracy in states’ accounting for their health- insurance premium taxes,” concluded Mr. Graham.

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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