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Milliman: Obamacare Even Raises Taxes on the Government

April 28, 2012

By Avik Roy

As you may know, the Affordable Care Act raises taxes on pretty much everyone, directly or indirectly, in order to fund its expansion of coverage for the uninsured. Most of these new taxes are unwise policy. But one Obamacare tax increase stands out for sheer boneheadedness: the law’s tax on insurance premiums, a provision that will raise taxes paid by the government itself, and make insurance less affordable.

Starting in 2014, the law imposes an $8 billion assessment on the health insurance industry. The assessment grows to $14.3 billion in 2018, and is indexed to insurance premium growth from then on. The fee is paid by insurers in proportion to their market share, as measured by premium revenues.

This, of course, will make health insurance less affordable, because insurers will be forced to increase their premiums in order to compensate for the new fee, which isn’t tax-deductible. But it’s not just ordinary individuals that will pay higher premiums, but also the government.

36 states contract with private managed-care companies to run their Medicaid programs. These Medicaid programs will be subject to the Obamacare premium tax. A study from Milliman, the actuarial and consulting firm, estimates that the tax will increase Medicaid premiums by 1.5 to 1.6 percent nationwide, which in turn will cost state and federal governments between $36.5 and $41.9 billion over ten years. (The tax will raise an additional $100 billion or so from the private sector.)

"This is not an issue on most people’s radar screens, but this is going to be a big problem," Matt Salo, executive director of the National Association of Medicaid Directors, told Kaiser Health News. "This policy never really made sense‚ĶI get the point of an insurance tax, but when you are just passing on those costs to Medicaid, that makes no sense."

Mitt Romney was mocked by many on the left for saying that "corporations are people." But he was making that observation in just this kind of context. Raising taxes on "corporations" has the effect of raising taxes on people, because it’s the customers and employees of corporations that bear the brunt of the increased costs incurred by those taxes. Obamacare’s tax on corporate insurers is paid by people, who end with with higher premiums, and by taxpayers, who are stuck with the higher Medicaid costs.

At a time when Medicaid beneficiaries are dying of toothaches because Medicaid underpays doctors for their care, it hardly makes sense to force state governments to throw money away on a gimmicky tax on insurance premiums. But the economic thinking behind that tax underlies much of the ironically-named Affordable Care Act.

Original Source:



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