Beginning in 2014, the effects of a new Health Insurance Tax under President Obama’s health care law could result in the loss of jobs and employer-provided health insurance for many employees in small businesses above the fifty employee threshold.
HIT is a federal tax on health insurance firms based on the policies they sell to individuals and companies. It is designed to raise more than $100 billion in 2014-2024, representing just one of numerous taxes and fees designed to help pay for the president’s massive health care overhaul.
Small businesses are concerned the new tax, which begins next year, will undermine Obama’s claim that his law will lower the costs of health insurance. Instead, policy experts worry the federal health care reform will increase premium costs, forcing many small businesses to cut jobs and dump their employer-provided health insurance altogether, sending their employees to look for insurance in the government’s health care exchanges.
Most Will See Premium Hikes
Devon Herrick, a senior fellow at the National Center for Policy Analysis, a public policy think tank located in Dallas, Texas, maintains HIT will not be applied evenly. Because most large corporations self-insure their workforce, he warns insurance companies will pass the costs directly to small businesses, the vast majority of which purchase coverage in the fully insured market.
“The smallest firms—those employing less than 50 workers—will not face penalties. Larger firms can satisfy their obligation by paying a $2,000 fine. Thus the incentive is for smaller firms to not expand beyond 50 workers, and for larger firms to pay a $2,000 fine rather than provide health coverage costing far more,” said Herrick.
Jonathan Ingram, a senior fellow for health policy and pension reform at the Illinois Policy Institute, agrees.
“ObamaCare comes with taxes like this. It’s a way for the administration to say it is prefunded even though it’s not. Small businesses and individuals are going to be paying the brunt, and combined with other taxes this will cause insurance premiums to go through the roof,” said Ingram.
Small Businesses Concerned
Ryan Thorn owns a small insurance planning firm near Salt Lake City. In May he told lawmakers, during a congressional hearing of the House Small Business Committee’s Subcommittee on Health Care and Technology, that many of the small business owners he deals with have told him they are “scared to death” of the new tax.
“HIT is a big share of how ObamaCare is going to be funded. All these small businesses are now being asked to shoulder this huge burden in a bad economy, and it scares the daylights out of them. Insurance premiums for an individual are expected to go up by $200, and for a family they are expected to rise by about $500 next year. They’re throwing their hands in the air,” said Thorn.
Thorn says his clients are making plans on how to deal with the new tax.
“Having small businesses and the individual market pay for this is wrong. There are better ways to do this,” Thorn said. “ObamaCare is a massive bill that could have been broken apart piece by piece. Instead, we’ve got this monstrosity that is going to control 1/6th of our entire GDP. It’s scary how much control we are giving our government.”
Accusation of Cronyism
John Dunn, a physician, lawyer, and policy advisor for The Heartland Institute, expressed grave concerns about the unintended consequences of the employer mandate in general, particularly given the ability of the administration to distribute exemptions from it.
“We have over 1,700 exemptions for corporations and unions to opt out of their ObamaCare employer mandate obligations. This is what happens when government picks the economic winners and losers. Small businessmen are not invited to the table, and they have no voice when the deals are being cut,” explains Dunn.
Dunn notes Health and Human Services Secretary Kathleen Sebelius has the authority to offer businesses and firms exemptions, which he says have largely gone to larger entities.
“If you are a small business and want to offer your employees health insurance, there will be no simple, inexpensive plans. They are loaded up with more than the basic requirements, and fees like Obamacare’s HIT will make them too expensive,” said Dunn. “What the Obama administration has done is create perverse incentives for small employers to not offer their employees health care. What is going to happen is the employers will drop the policies, forcing them into the exchanges, because the penalty to discourage employers for not providing their employees with health insurance is much less than the cost of providing insurance.
“What the Obama administration wants to do is drive everyone into a national health care scheme,” said Dunn.
Employer Dumping Inevitable
Dr. Roger Stark, a health care policy analyst at the Washington Policy Center and a retired physician, agrees with Dunn, saying it is inevitable that employers will begin dropping their employee health plans.
“The law sets the employer mandate fine at about $2,000, much lower than the cost of a health policy. In Justice Robert’s decision, calling it a tax, they cannot raise the penalty too high, so this makes the decision to drop employer coverage much easier for businesses,” said Stark. “It’s another unintended consequence of President Obama’s health care reform law.”