Return of health insurance tax will put $5.5B burden on Medicaid, study says

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Of that $5.5 billion cost burden expected to fall on the Medicaid program with the return of the health insurance tax, states will bear $2.38 billion and the federal government will bear $2.38 billion. 

Not only will the return of the health insurance tax raise premiums, but it will also place a cost burden on the Medicaid program, according to a new study.

The study (PDF), produced by the consulting firm Health Management Associates and commissioned by UnitedHealth, expands upon the findings of another recent analysis prepared on behalf of the insurer. That analysis, produced by Oliver Wyman, estimated the tax would increase insurance premiums by as much as $22 billion next year and $267 billion from 2018 through 2027.

The tax, which was levied as part of the Affordable Care Act, was collected from 2014 to 2016, but was put on hold for 2017 as part of a spending bill passed in late 2015.

Of the $22 billion in increased premiums attributable to the return of the health insurance tax next year, $5.5 billion will be attributable to Medicaid, according to the HMA study. That’s because taxes imposed on health insurers are an allowable cost in calculating how much Medicaid must pay insurers that participate in the program.

“To a substantial degree,” the study notes, “the government is taxing itself.”

Of that $5.5 billion total, states will bear $2.38 billion and the federal government will bear $2.38 billion. The states likely to experience the highest Medicaid premium increases are California, $1.28 billion; Texas, $430.5 million; Ohio, $396.2 million; and Florida, $388.8 million.

Perhaps more worrisome to the private sector, though, is the study's prediction that states facing higher-than-expected costs could react by cutting provider payments and reducing optional services under Medicaid.

If provider payments decrease, hospitals will likely try to shift the burden onto private payers, which could result in as many as 36,500 privately insured individuals losing coverage, the study says. That scenario could also increase total private sector premiums up to $2.7 billion—on top of the tax’s initial $22 billion premium impact.

To prevent such premium and spending increases, the health insurance industry has been lobbying heavily for Congress to repeal the tax before the one-year moratorium lifts.

Indeed, America’s Health Insurance Plans says on its website that it will “continue to push for a full repeal of the health insurance tax because it makes healthcare less affordable for the very people who need the most help affording healthcare.”

Conservative groups have joined the campaign, recently sending a letter to GOP leaders in Congress that argues for the repeal of both the health insurance tax and the medical device tax, FierceHealthcare has reported.