Rhode Island Considers Insurance Tax to Fund Exchange

Published March 21, 2015

Faced with the need to find state money to fund Rhode Island’s health insurance exchange established under the Affordable Care Act (ACA), Gov. Gina Raimondo (D) is proposing a tax on all health insurance premiums in the individual and small-group markets.

The surcharge rate will differ between the two markets in proportion to each’s presence in the exchange, projected to be 3.8 percent in the individual market and 1 percent in the small-group market.

The state expects to collect around $12 million through the tax in 2016, but the loss of federal funds for the exchange in future years means the amount of revenue needed and the rates assessed on individual and small-group plans are likely to increase as well.

Mike Stenhouse, CEO of the Rhode Island Center for Freedom & Prosperity, says it is unfair to impose a broad-based tax that has only a pretense of being a user fee and that the state can’t afford an exchange.

“Rhode Island simply does not have a large enough tax or [insurance] policy base to justify the high costs of an ACA exchange,” Stenhouse said. “This also drives up the cost of health insurance for individuals and small businesses at a time when many already find it unaffordable.”

Justin Katz ([email protected]) is research director at the Rhode Island Center for Freedom  Prosperity.