The “HIT” Tax

WHAT IS IT? The Health Insurance Tax (HIT Tax) is essentially a sales tax on health insurance policies, which was included among the provisions of the Affordable Care Act (ACA).  It is levied on the health insurance companies, however, a substantial amount the expense ends up in the form of higher premiums.

Rather than charging a fixed percentage per policy sold, the tax is assessed as a fixed amount each year on insurers, allocated among all insurers in the marketplace, roughly in proportion to their market share as measured by total premiums.  Though the statute terms the HIT Tax as a fee, in truth, it functions as a tax, and is commonly referred to as such.
WHO DOES IT HELP? The HIT Tax is the largest revenue generator in the ACA statute.  Over the course of the decade between 2014 and 2024, the tax is expected to cost some $101.7 billion, according to America’s Health Insurance Plans (AHIP).
Proponents of the tax operate on the assumption that insurance companies will make more money due to increased enrollment under the ACA, hence they should pay more in taxes on that increased business.   The structure of the tax allows the federal government to easily forecast revenue from it.  
WHO DOES IT HURT? The HIT Tax harms insurers and, more importantly, their customers.  
The tax makes it nearly impossible for insurers to accurately forecast their tax liability until well after it is incurred because each carrier’s amount owed is a function, not only of their own premium revenue, but that of every other health insurer in the nation.
In order to meet state and federal solvency and actuarial requirements, most of this tax must be passed along in the form of higher premiums, higher co-pays or reduced benefits.  
Financial pressure on insurers, and ultimately customers, is exacerbated by the fact that the “Risk Corridor” funding provided for in the original legislation has been essentially eliminated by Congress.   This funding mechanism was designed to reimburse insurers for losses incurred for the first several years after implementation of the ACA.  Ultimately, ACA participating insurers incurred some $2.87 billion in losses.  Unless these losses are addressed, premiums will be forced even higher.

WHAT’S IN IT FOR OUR MEMBERS? The HIT Tax will continue to adversely impact our members until the Congress addresses it and other structural problems with the Affordable Care Act.   Delaware’s insurance market is quite small, relative to that of other states.   There is insufficient competition where carriers and health care providers are concerned, hence, there is little in the way of normal market forces to constrain health care costs or health insurance premiums – a problem not easily solved as government regulatory action to constrain cost in either area tends to have a negative effect on competition.

THE CHAMBER’S VIEW Congress’ lack of attention to the inevitable unintended consequences of the Affordable Care Act was incredibly irresponsible.  The gross irresponsibility of their initial approach to a government incursion into one-sixth of our nation’s economy has been followed by year-after-year of failure to address very real structural problems with the Act itself.  Ultimately, it is the small businesses on which we rely for job growth and the households on which we rely for consumer spending that bear the most significant impact of this abject failure on the part of Congress.

The New Castle County Chamber of Commerce calls on the 115th Congress to repeal or substantially alter the HIT Tax and to address structural issues with the ACA that threaten access to affordable health insurance in our country.