The “Belly Button” Tax
We haven’t said much about it at this blog, but it amounts to $10 billion a year and the unions hate it, as so do many businesses. As Doug Badger explains:
In order to raise this $10 billion, section 1341 of the health care law requires an assessment of $63 on each of the roughly 159 million people who are covered under group health plans. This is a transfer of $10 billion from people who will not get coverage through the new exchanges next year to the estimated 7 million people who will. The money is intended to fund reinsurance arrangements, helping to help pay the claims of people who run up unusually high medical bills.
Badger, who was George W. Bush’s lead health care policy advisor, is critical of this and other transfers to insurers who participate in the exchanges.
I would take issue with two paragraphs in this overall excellent article.
Regarding ‘risk corridors’ and risk adjustment payments:
– every other nation that uses private insurers for universal coverage uses some form of risk adjustment.
– in fact Medicare Advantage (a Bush program) uses a lot of risk adjustment.
Health insurance is NOT stable when it is pure free market. Carriers jump in and out and they really have no choice, their losses can be huge, when there is no risk adjustment.
My other difference with Mr Badger is on the employer plans tax.
The persons on employer plans are economically privileged compared to those in the individual market.
Depending on where they work, they receive in some cases $15,000 a year of tax-free compensation.
Many health reform proposals (including Stuart Butler’s, I think) would have the persons on employer plans taking the whole $15,000 as ordinary income.
$63 a year is a peanut tax by comparison.
Bob,
Thanks for your comment. I have no issue with risk adjustment, which is used both in the Obamacare law and in Medicare Advantage, as you point out. Risk adjustment is an arrangement among insurers in a particular marketplace (in this case, the exchanges) to adjust for the fact that some insurers might get an unusually healthy or unhealthy pool of subscribers. The risk corridors, on the other hand, limit profits and losses of insurers that participate in the exchanges. So an insurer that priced its product too low (even after taking risk-adjustments into account), is given money by the federal government at the expense of successful insurers to compensate for its poor business decisions.
On the subject of reinsurance, I would take issue with your statement that “employer plans are economically privileged compared to those in the individual market.” That is certainly the case today and the answer is tax reform that would treat group and individual health insurance equitably. But plans sold through the exchanges enjoy enormous advantages, including a mandate that people buy their product, subsidies for people who do, and various provisions of law designed to help insurers who sell through the exchanges make money. There simply is no warrant for the government to assess group health plans that don’t participate in the exchanges to subsidize plans that do.
I’m clearly no fan of Obamacare, but its advocates claim that they want to establish “marketplaces” within which insurers engage in free and fair competition to the benefit of consumers. If that is truly the law’s aim, then it should be amended to assure that the government is protecting competition, not competitors.
Doug Badger
The persons on employer plans are economically privileged compared to those in the individual market.
That’s true. I believe a better — less bureaucratic — solution is a refundable tax credit. Employers could deduct premium contributions, but as you suggest, workers would declare the employer contributions in ordinary income (which would be offset by the tax credit). John has written about how a tax credit would have alleviated most of the problems we are now facing with the exchanges.
“the unions hate it”
Click here for one clever tax the unions HATE!
159 million people paying for 7 million doesn’t seem right…
One of those number is vastly disproportional to the other.
I agree. It should be a fewer number of rich people paying.
That’s not where I was going with that.
Why wouldn’t he be critical of taxation?
Maybe he’s secretly a liberal. He is a Bush man after all…
Yes, Billy, I am a Bush man and I am critical of a tax that both unions and employers oppose. Plans that sell through the exchanges should make their own reinsurance arrangements just as plans outside the exchanges and group health plans do. There is no reason for the government to assess group health plans $10 billion and provide that money to non-group health plans in the exchanges. That $10 billion in corporate welfare translates into a $63 per capita assessment on the roughly 159 million people who get group health care coverage. If the plans that sell through the exchanges had to finance their own reinsurance through their own premiums, they would have to collect around $1428 for each of the estimated 7 million enrollees. That amounts to a transfer of $119 per member per month to health insurers who participate in the exchanges from group health plans that do not. The $10 billion payout is what makes premiums in the “Affordable” Care Act affordable.
Congress should repeal the section of PPACA that creates this tax and subsidy.
Doug Badger
Doug Badger
Oh, but when it’s a tax on unions, suddenly the GOP is in favor of it?
Not me. I oppose this tax and the transfer of money from people who don’t get coverage through the exchanges to people who do.
Doug Badger
“helping to help pay the claims of people who run up unusually high medical bills”
Seems better to identify the cause and stop it then just deal with the effects.
The cause is greed hospital administrators, and the fix is Obamacare. Problem solved.
Something tells me that that particular bandaid isn’t going to be enough.
If the enrollments turn out badly in the ACA exchanges, $10 billion will be a paltry sum in terms of what reserves the insurers will really need.
Then we will have a bigger debate than this relatively small tax.
The designers of the ACA felt that they had to use private insurers for the exchange. Single payer types like me were warning throughout that these insurers would have to be bribed and subsidized to stay on board. We will see what happens.