How to Reduce Health Insurance Premiums


It’s no secret health insurance premiums are rising. What can be done about it?Reminds me of the old saying, “Everybody talks about the weather but nobody does anything about it!” But there actually is a way to lower health insurance premiums.

Avik Roy, healthcare economist writing in Forbes, says the answer is to eliminate the health insurance tax. Wouldn’t that be a nice Christmas present?

What is the health insurance tax?

A bit of history is needed here. When President Obama proposed the Affordable Care Act (ACA) in 2010, now known as ObamaCare, he insisted it be “budget neutral”, which means it would not increase the federal deficit. This made it politically acceptable – even if it required some subterfuge and “accounting creativity” to make it possible.

To make the $2 Trillion price tag for insurance subsidies possible, the ACA required huge cuts in Medicare spending ($716 Billion) and a long list of tax increases (21).

These tax increases harmed economic growth and contributed to the slow economic recovery after the 2008 recession. The Tax Foundation estimated the 3.8% net investment income tax alone cost the economy 133,000 jobs and restrained wage growth.

But Roy gives the blue ribbon for the Dumbest Tax in ObamaCare to the tax on health insurance premiums (HIT). The HIT is a tax assessed on every health insurance premium sold. The tax is assessed on the health insurance provider but the cost is paid by the one who purchased the policy since it is incorporated into the premium. The Joint Committee on Taxation estimates it will raise $161 billion in revenue between 2019 and 2028.

Actually, it’s worse than that – consultants have estimated that for every dollar the government raises in taxes, the premiums go up by around $1.27. If you do the math it translates into an annual premium increase in 2020 of $196 per person for buying coverage through ObamaCare; $458-$479 for those who obtain their coverage through their employer; $241 for enrollees in Medicare Advantage; and $147 for enrollees in Medicaid managed care plans.

Adverse Selection

The bad news is not over. Health insurance premiums go up even more for related other reasons.

First, as health insurance premiums get more expensive due to the tax, more healthy people drop out of the insurance market. As more healthy people drop out, premiums must increase even more to pay for the sick patients that remain.

Second, the federal government is subsidizing the cost of health insurance for nearly everyone. Premiums in Medicaid and Medicare Advantage are heavily subsidized by federal and state governments. The same is true for ObamaCare. Even employer-provided insurance is subsidized through the tax code (that doesn’t recognize this as income).

That leaves us with government at its worst: The federal government imposes a tax (HIT) that leads to higher premiums. Higher premiums lead to higher levels of subsidies of premiums paid by the same government.

The consulting firm Oliver Wyman believes the premium tax will result in $58 billion in additional spending on Medicaid premiums between 2020 and 2029. Premiums will rise $72 billion in Medicare Advantage, $103 billion for employer-sponsored coverage, $29 billion for individual –market coverage, $4.7 billion for Medicare drug plans, and $3.8 billion for federal employees.

That’s a grand total of $211 billion in premium hikes over ten years. Therefore, the HIT tax will raise $161 billion in revenue and cause premiums to go up $211 billion over the same ten years.

Roy says its time to repeal the HIT tax and there’s no better time than now during the “lame duck” session of Congress. It’s the perfect Christmas present for all Americans.

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