May 7 2014
Patrice J. Lee
Healthcare coverage is about to get little more expensive in the nation’s capital. The D.C. City Council just passed a new tax on health insurance products to pay for its ObamaCare exchange once federal funding dries up next year. D.C.’s tax may be unique but as the other state exchanges face the realities of the federal spigot being turned off, they too will be on the hunt for more funding.
D.C.’s tax has a sneaky side to it though. A 1-percent tax is assessed on plans offered through insurers on and off the city-run health exchange. Is it fair to tax those plans that are not a part of the Health Link, the city’s exchange? The D.C. Council thinks so as they have to fund the city’s $30 million exchange budget somehow. Some insurers don’t agree. They object to being shaken down and their healthcare plans unfairly taxed when they aren’t even available in the ObamaCare marketplace.
The Washington Times reports:
“We are disappointed in the Council’s decision, which is inconsistent with federal law,” the American Council of Life Insurers said in a statement. “The ACA clearly states that only carriers of participating health plans under the jurisdiction of the health exchange authority can be assessed to fund the exchange.”
Mila Kofman, executive director of the D.C. Health Benefit Exchange Authority, countered that it was “an issue of basic fairness,” because supplemental insurance providers derive a benefit from people gaining underlying policies.
“Insurers who benefit and profit — not the taxpayers — should pay,” she said in the run-up to the vote.
In general, the states are leaning on general revenues, withholding a larger percentage of premiums paid to insurers or shifting around dollars that were allocated for other health programs.
This is a problem with which every state which takes federal funding to create a new program must grapple. The funding is not permanent – nor should it be. When it disappears there is often a scramble to replace it with private donations, new tax revenue, or begging the federal government to reinstate those funds.
Other states that erected their own exchanges face the same quandary. Minnesota’s legislature approved a plan to charge insurance carriers 3.5 percent on premiums, Nevada is charging participating insurers $4.95 to $13 per-member and per-month and California will follow suit with a $13.95 fee.
D.C. is unique in that all insurers will be subject to their tax even if they don’t participate in the city’s exchange. They call it a fairness issue, but how fair is it to be taxed for something you don’t consume, contribute to, or benefit from?
A similar argument could be said of many taxes Americans pay. For example, as a single woman in the city, I pay for the education of children when I have none of my own.
What’s baffling is that officials think the taxes they assess will hit the insurers only. Businesses will try to maximize their bottom lines and minimize costs. This tax will just be passed onto customers. In reality, D.C. just added a tax to anyone with a healthcare plan. It’s another demonstration of life with ObamaCare.