The individual mandate isn’t the only tax-based provision that rang in the new year along with the Affordable Care Act. In addition to the uninsured having to pay extra starting on January 1, two other programs will be lightening pocketbooks around the country: Joining the individual mandate are the health insurer tax and the reinsurance fee.
Most people are aware of the individual mandate. As a way to guarantee healthy people sign up for health insurance, and in order to offset the higher costs of sicker Americans, a fee was included. Chief Justice John Roberts upheld this provision in the Supreme Court’s 5-4 decision on the health care law’s constitutionality. It was a tax, he wrote, not a penalty, allowing the court majority to reach the decision “that the individual mandate may be upheld as within Congress’s power under the Taxing Clause.”
Individuals must maintain a minimum standard of coverage, or they will be fined. This is calculated one of two ways. The first is that the fee can be 1 percent of a yearly household income. The percentage increases in subsequent years, growing to 2 percent in 2015, 2.5 percent in 2016, and will be adjusted for inflation thereafter. The cost can also be calculated by charging $95 per uninsured adult and $47.50 for each child younger than 18. The payment required is determined by calculating which cost is higher.
The Health Insurer Tax is a sales tax on insurance, and it will increase the cost of health care. As a result, America’s Health Insurance Plans has come out against the health insurer tax. “This tax will add a financial burden on families and small businesses at a time when they can least afford it, and it should be repealed,” according to the organization.
America’s Health Insurance Plans says that the total amount for 2014 will be $8 billion. This increases until it reaches $14.3 billion in 2018. After 2018, the tax will be based on premium trends. A Joint Committee on Taxation estimate calculates that over the next 10 years, the tax will exceed $100 billion. The advocacy group supports a two-year delay of the tax. In 2011, an analysis by Oliver Wyman, a consultancy, indicated that this was going to be passed along to consumers.
The report wanted to bring attention to a “one significant provision … that has received relatively little coverage.” The provision in question was the insurer fee. The consulting firm estimated “that the insurer fees will increase premiums in fully insured coverage markets by an average of 1.9% to 2.3% in 2014. The impacts generally increase over time such that we estimate by 2023, the fees will ultimately increase premiums by an average of 2.8% to 3.7%.”
The Reinsurance Assessment (or fee/tax) funds the Reinsurance Program. The Internal Revenue Service explains that the program is meant “to help stabilize premiums for coverage in the individual market during the years 2014 through 2016.” To do so, contributions are required “under this program to support payments to individual market issuers that cover high-cost individuals (payment-eligible issuers).”
Cigna created an information page to explain the the scope of the assessment and how it will be passed on to members. While the program is in operation, $25 billion will be collected, $12 billion in 2014 alone. The following year it falls to $8 billion and then $5 billion in the final year. This works out to be $63 per person in 2014, $44 in 2015, and finally, $25-$30 in 2016.
The Heritage Foundation, a conservative think tank, points out that in addition to the three previously mentioned fees, the Employer Mandate was also scheduled to begin in 2014. That kickoff date was extended to 2015 by the administration. Starting in 2015, the penalty will range from $2,000 to $3,000. It will be levied on businesses that employ 50 or more full-time employees and do not provide insurance.