Insurer Tax Will Hit Medicaid Health Plans

The health reform law’s new tax leveled at health insurers, starting in 2014, also will apply to Medicaid.

• The Affordable Care Act imposes several new taxes on healthcare industry sectors.
• These tax increases are supposed to help cover the additional costs of the massive law.  That includes covering the uninsured.
• It turns out the new health insurance tax applies to Medicaid managed care plans, which the states and federal government fund.
• A report from Milliman, on behalf of Medicaid Health Plans of America, calculated the billions of dollars the federal law will exact from overstressed state budgets and from itself.

The health law is structured so that covering more of the uninsured in Medicaid will actually end up costing taxpayers more to cover the higher insurance costs.  It spurs a vicious circle.

• New analysis by Milliman Inc. has found that the health insurer tax will drive up Medicaid’s program costs somewhere between $36.5 billion and $41.9 billion by 2019.
• State Medicaid programs have sought to control costs through private managed care plans.  Now this law raises taxes on those very plans.
• Half of Medicaid’s 60 million beneficiaries have Medicaid managed care coverage.  A large portion of the 32 million uninsured will end up in Medicaid, and likely half of those will enroll in these plans.  The alternative is to plug them into the costly standard Medicaid.
• State governments have been suffering out-of-control Medicaid cost rises.  Now they’re forced to put more people into this program.  And each new enrollee will cost both the state and the federal government more to pay the insurer tax.

This new tax will collect some $73 billion from private insurers from 2014 to 2019.  Medicaid’s new-found tax exposure will take a significant bite out of government budgets.

• Over 10 years, states will pay an extra $13 billion to cover the Medicaid-affiliated tax increase alone.  The federal government will pay its portion, at least $23.5 billion, for Medicaid’s cost from this tax.
•  All insurers must pay the new tax on premium revenue.  Insurers that contract with state Medicaid programs get hit, too.  So their costs to insure Medicaid patients rise, as well.  The state-federal funding formula requires Medicaid to pay the costs insurers bear for covering program participants.
• This tax increase raises average Medicaid coverage costs some $1,530 for each beneficiary’s health plan by 2023.

This tax will end up doing one of two things.  Either Medicaid budgets spike because the plans intended to control costs must pass along their higher costs.  That could mean overstretched state budgets will get even tighter.  It definitely means higher taxes on everyone.  Or Medicaid programs trim qualifications for who can enroll in the program.  Either way, this situation certainly wasn’t planned.  Optimally, it will lead to more Americans in the end having more private coverage options.  We shall see.