New CBO Report on Health Care Legislation (Excise Tax )
Posted on Mon Nov 30, 2009 at 12:44:17 PM EST
Tags: health care legislation (all tags)
As BTD has been writing this morning, the new CBO report (pdf) is out crunching numbers on the proposed health care legislation. For those interested in the effect of the excise tax on high-end, small-group insurance plans, here's my take on what it says (shorter verison: ditch your plan for one providing fewer benefits if you want to avoid higher premiums):
First, what the excise tax is:
Beginning in 2013, insurance policies with relatively high premiums would be subject to a 40 percent excise tax on the amount by which the premiums exceeded a specified threshold. That threshold would be set initially at $8,500 for single policies and $23,000 for family policies (with certain exceptions); after 2013, those amounts would be indexed to overall inflation plus 1 percentage point.
Next: the effects of the excise tax on high-premium insurance policies offered through employers: [More...]
On balance, the average premium among the affected workers would be about 9 percent to 12 percent less than under current law.
Why? Because of the number of workers who would opt for lower cost plans with fewer benefits to avoid higher premiums they will face for their current plans, which will occur because the insurers will pass the cost of the excise tax onto them in the form of higher premiums:
Specifically, an estimated 19 percent of workers with employment-based coverage would be affected by the excise tax in that year. Those individuals who kept their high-premium policies would pay a higher premium than under current law, with the difference in premiums roughly equal to the amount of the tax.
However, CBO and JCT estimate that most people would avoid the cost of the excise tax by enrolling in plans that had lower premiums; those reductions would result from choosing plans that either pay a smaller share of covered health care costs (which would reduce premiums directly as well as indirectly by leading to less use of covered medical services), manage benefits more tightly, or cover fewer services.
....Thus, people who remained in high-premium plans would pay higher premiums under the excise tax than under current law, and people who shifted to lower-premium plans would pay lower premiums under the excise tax than under current law—with other factors held constant.
So the excise tax will lower premiums because we'll be switching to plans with lesser and fewer benefits to avoid the increase in premiums we'd face if we kept our current plans since the insurers will be passing the excise tax onto us.
More on the passing of fees to the consumer:
The legislation would impose several new fees on firms in the health sector. New fees would be imposed on providers of health insurance and on manufacturers and importers of medical devices. Both of those fees would be largely passed through to consumers in the form of higher premiums for private coverage.
Since premiums seem to rise every year anyway, I can't say that premiums for these plans wouldn't be as high or higher in 2013 if we didn't pass the legislation and excise tax. Thoughts?
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