BOSTON — Massachusetts families and small businesses are scheduled to be hit with higher health insurance premiums starting in 2014 when a new federal tax on health plans kicks in, jeopardizing the state’s efforts to rein in health care spending, according to a new report and industry leaders.
With the focus from politicians and government leaders on tax increases and spending cuts associated with the near-term fiscal cliff, other looming tax increases also stand to have chilling effect on business growth.
Under the Affordable Care Act, health plans will be hit with a new sales tax in 2014 projected to generate $8 billion initially and up to $14.3 billion by 2018. The tax increases each year after it takes effect, and the Congressional Committee on Taxation estimates the health insurance tax will exceed $100 billion over the next decade.
A new report from America’s Health Insurance Plans estimates that Massachusetts families and small businesses will be hit particularly hard. The excise tax extends to Medicaid Advantage and Medicaid Managed Care plans.
The state-by-state analysis, conducted by Oliver Wyman for the payer organization, projected that Massachusetts would be the tenth hardest hit state in the country by the new tax approved by Congress to help pay for the expansion of health care coverage under ObamaCare.
From 2014 through 2023, the tax will cost Massachusetts residents and businesses an estimated $3.85 billion to $3.89 billion in surcharges on health plans, according to the report.
“At a time when the state is taking steps to contain cost, the health insurance tax at the federal level is going to exacerbate the challenge of getting costs under control,” said Eric Linzer, senior vice president for government relations at the Massachusetts Association of Health Plans.
Families purchasing health plans through the private market would pay on average $9,937 more over the next 10 years for their plans, second only to New York, while family coverage offered through Massachusetts small business would rise by $7,895 over that period. The cost on small businesses in Massachusetts, which is typically shared with employees, ranked fifth behind West Virginia, New York, New Hampshire and Nebraska.
“With full implementation of the ACA a year away, the focus needs to be on making coverage more affordable,” said AHIP President and CEO Karen Ignagni. “Taxing health insurance will have the opposite effect by making it more expensive.”
Gov. Deval Patrick and the state Legislature have prioritized making health care more affordable, last summer passing a comprehensive payment reform bill that will experiment with alternative payments and caps on cost growth to reduce expenses. Health care now consumes more than 40 percent of the state budget, and leaders frequently site the high cost of insurance in Massachusetts as an impediment to business growth. The new cost control law sets the 2013 health care cost growth benchmark at 3.6 percent.
The governor and many Democrats in the Bay State have also been staunch supporters of the Affordable Care Act, while some like U.S. Sen. Scott Brown (R-Wrentham) and U.S. Rep. Niki Tsongas (D-Lowell) have called for the repeal of some of the taxes in ObamaCare, particularly the tax on medical device manufacturers.
The report estimates that the tax could reduce future private sector employment over the next 10 years by 159,000 jobs, and reduce sales nationwide by $18 billion.
“What would have to happen at the federal level is a repeal of the insurance tax. The unfortunate thing about this tax is that it’s going to add to the cost of care which is the opposite goal of the ACA,” Linzer said.