Enzi, Alexander and Colleagues to IRS: $100 billion in Obamacare health insurance taxes deserve scrutiny

Washington, D.C. – The President’s health care law imposes a number of new taxes on American businesses and individuals that will drain money from Americans’ pocketbooks. Among the many taxes and fees imposed by Obamacare is an annual fee levied on health insurance providers which is estimated to take more than $100 billion out of the economy by 2022. Yet despite this staggering figure, the Administration did not conduct a study of the effects of the health insurance premium tax on the economy. The senior Republican on the Senate Health, Education, Labor and Pensions Committee, Lamar Alexander (R-Tenn.), today joined Senate and House colleagues in sending a letter led by U.S. Senator Mike Enzi (R-WY) and U.S. Rep. Erik Paulsen (R-MN), to Secretary of the Treasury Jack Lew and Acting Commissioner of the IRS Daniel Werfel asking for a detailed explanation on how the Administration made that determination in light of a recent Executive Order requiring a study and economic analysis for any rule with potential costs in excess of $100 million.

Today’s letter was also signed by Senators Orrin Hatch (R-UT), Pat Roberts (R-KS), John Thune (R-SD), Johnny Isakson (R-GA), Mark Kirk (R-IL), Tim Scott (R-SC), John Barrasso (R-WY).
           In the letter, the members wrote that “in assessing the economic impact of this tax, the collection figure alone does not convey the whole story. As the Congressional Budget Office has pointed out, this tax ‘would be largely passed through to consumers in the form of higher premiums for private coverage.’ In addition, unlike most business expenses, this tax is non-deductible for insurers, which will further incentivize insurers to increase beneficiary premiums to offset the additional tax burden. This further increase in premiums will hit small businesses and individuals hardest.
           “The National Federation of Independent Business estimates that at least 146,000 jobs will be lost and families will pay an additional $5,140 in premiums by 2022 as a result of this pass-through tax,” the letter continues. “Thanks to the way the premium tax is structured in the law, these premium increases will generate increased tax penalties, which will repeat the vicious cycle of tax increases and pass-through costs.”
           The letter also stressed that there are negative economic impacts on states that are not being accounted for. Noting that “Since Medicaid managed care plans are not exempt from this tax, plan sponsors will also likely pass along the increased costs imposed by this tax to the states, once again resulting in higher premiums for state Medicaid plans. As a result, the fiscal strain on many states will be further exacerbated by the downstream cost of this new tax. Other services will be sacrificed to account for these costs, which will create further economic uncertainty.”

The text of the letter is included below.

The Honorable Jacob Lew

Secretary

U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

The Honorable Daniel Werfel

Commissioner (Acting), Internal Revenue Service

1111 Constitution Avenue NW  

Washington, DC 20224

Dear Secretary Lew and Acting Commissioner Werfel:

We write to request details on the U.S. Treasury Department’s methodology to assess the economic impact of the tax imposed upon health insurance providers as required by the President’s health care law. The Administration, in the proposed rule, noted that this rule was not a “significant” rulemaking action with an adverse impact upon the economy of $100 million or more, which would require it to specifically analyze the economic impact of this tax. However, recent data on the amount collected by the tax as well as the pass-through costs resulting from this tax appear to show that this assessment may not have been based on all available data.

The President’s health care law imposes a number of new taxes on American businesses and individuals. Among these taxes is an annual fee levied on health insurance providers, calculated through a statutory formula that is based upon the net premium amounts collected by each insurer for a calendar year. The law predetermines a fixed amount of revenue that must be collected by this tax each year, regardless of trends in premiums or insurer business. Based on the law, the health insurance tax will collect more than $101 billion by 2022—an amount that far exceeds the $100 million threshold outlined in Executive Order 12866

Further, in assessing the economic impact of this tax, the collection figure alone does not convey the whole story. As the Congressional Budget Office has pointed out, this tax “would be largely passed through to consumers in the form of higher premiums for private coverage.” In addition, unlike most business expenses, this tax is non-deductible for insurers, which will further incentivize insurers to increase beneficiary premiums to offset the additional tax burden. This further increase in premiums will hit small businesses and individuals hardest. The National Federation of Independent Business estimates that at least 146,000 jobs will be lost and families will pay an additional $5,140 in premiums by 2022 as a result of this pass-through tax. Thanks to the way the premium tax is structured in the law, these premium increases will generate increased tax penalties, which will repeat the vicious cycle of tax increases and pass-through costs.

Finally, the health insurance tax will have a negative economic impact on states as well. Since Medicaid managed care plans are not exempt from this tax, plan sponsors will also likely pass along the increased costs imposed by this tax to the states, once again resulting in higher premiums for state Medicaid plans. As a result, the fiscal strain on many states will be further exacerbated by the downstream cost of this new tax. Other services will be sacrificed to account for these costs, which will create further economic uncertainty.

To better understand how the Administration determined that the proposed rule is not economically significant, please respond to the following questions and document requests:

• What methodology did the Administration employ in assessing the total cost of this tax?
• As part of its calculations, did the Administration account for the pass-through costs of the tax to families and small businesses in the form of higher insurance premiums and to states through higher Medicaid costs? If not, why not?
• Did the Administration calculate the economic impact of the pass-through costs imposed as a result of this tax, including lost wages, reduced health benefits and employment opportunities? If not, why not?
• Did the Administration take into account the non-deductibility of the health insurance tax in estimating the economic impact of this proposed rule? If not, why not?
• Please provide any memos, e-mails, or other documentation developed by your department or the Office of Management and Budget related to the development of this analysis.

Your reply is requested by no later than the close of business on Friday, October 18.  Thank you for your response. 

Sincerely,

-end-