Lawmakers Must Repeal Obamacare’s Health Insurance Tax

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Posted by Alexander Hendrie on Tuesday, January 3rd, 2017, 7:00 AM PERMALINK

President-elect Donald J. Trump, House Speaker Paul Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.) have all promised repeal of Obamacare will come in early 2017. As part of this commitment made to the American people, they must repeal the Obamacare tax on health insurance and all of Obamacare’s one trillion in higher taxes.

Obamacare contains numerous taxes that directly impact middle class families including taxes on Health Savings Accounts and Flexible Spending Accounts, an income tax increase on high medical bills, and even a tax for failing to buy “qualifying” health insurance – as defined by the federal government.

In addition, Obamacare directly increases the cost of healthcare through the health insurance tax. This tax is projected to cost taxpayers – particularly those in the middle class – $130 billion over the next decade. 

The total revenue this tax collects is set annually by Treasury and is then divided amongst insurers relative to the premiums they collect each year. While it was suspended in 2017, the tax will total $14.3 billion in 2018 and will increase in subsequent years.  Those effects will start to be felt in the next several weeks as businesses start to renew coverage that will extend into 2018.

While the negative impacts of the Obamacare health insurance tax are partially obscured from taxpayers, it undoubtedly hurts the economy and disproportionately impacts middle class families and small businesses. If lawmakers are serious about upholding their commitment to eliminating Obamacare, they must repeal the health insurance tax together with the nearly 20 other Obamacare taxes early in 2017.

Obamacare’s Health Insurance Tax is Bad Policy

Ideal tax policy should meet several criteria. One goal should be for taxes to be applied with a broad base so as not to pick winners and losers. This allows economic decisions to be made with the fewest distortions present which in turn promotes the efficient allocation of capital and creation of jobs.

On this measurement, the Obamacare health insurance tax fails. Not only is it levied in the form of a discriminatory excise tax on one product, the health insurance tax falls only on fully insured plans and thus exempts large corporations and labor unions who are almost universally self-insured.

Tax policy should also be transparent so that taxpayers – and voters – are fully aware and able to make educated decisions on the cost and size of government. If a certain tax is obscured from the view of taxpayers, it is far easier for politicians to raise that tax without any accountability.

On transparency, the health insurance tax fails too. Because the costs of the health insurance tax are baked into  health insurance premiums the negative impacts of the tax are obscured.

The Costs of the Tax are Passed on to the Middle Class, Seniors and the Poor

Despite its indirect nature, the costs of the health insurance tax are inevitably passed on to small businesses that provide healthcare to their employees, and middle class families through higher premiums. In addition, the tax impacts the care received by seniors through Medicare advantage coverage and low-income Americans that rely on Medicaid managed care.

According to the American Action Forum, the Obamacare health insurance tax will increase premiums by up to $5,000 over a decade and will directly impact 1.7 million small businesses, 11 million households that purchase through the individual insurance market and 23 million households covered through their jobs.

The Health Insurance Tax Hurts the Economy and Suppresses Job Creation

Typically, small businesses purchase insurance through the small group insurance market, while larger employers have the scale to provide healthcare through self-insured plans, which are excluded from this tax. 

Because it falls disproportionately on small businesses, the health insurance tax hits a key driver of American growth and jobs.

Small businesses account for half of all jobs in the US and two-thirds of new jobs in recent decades so this tax will mean businesses across the country can spend less investing in new equipment, hiring new workers, or providing higher wages.

One estimate, conducted by the National Federation for Independent Businesses estimates the tax could cost up to 286,000 in new jobs and reduce small businesses sales by $33 billion through 2023.

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