Originally published by the New Haven Register (Link)
From community businesses to local workers and their families, everyone in Connecticut felt the economic effects of the coronavirus pandemic. As we look ahead to what life may look like, it is commendable that Gov. Ned Lamont and the Connecticut General Assembly are looking to expand access to affordable health care for our most vulnerable. But their proposed tax on health insurance coverage for those who purchase health care through the fully insured marketplace is the wrong approach.
Those advocating for this proposal in Connecticut are promising that this tax will only be paid by insurance companies. Unfortunately, this claim has been debunked, and we can turn to this exact policy being struck down in Congress to understand why.
At the federal level, House Democrats, under the leadership of Speaker Nancy Pelosi, repealed a similar health insurance tax in 2019, and subsequently workers and families saved $500 on average in lower health insurance premiums. This legislative moment is critical to our understanding of the health insurance market. For Connecticut Benefit Brokers, this means that not only can we estimate the cost that this tax will have on consumers here, but we have historical data that outlines the burdens this tax would create on our local businesses.
As insurance underwriters, we have a “big picture” perspective for what local businesses, their employees and their families need when it comes to health insurance. We carefully work with our customers to find the best possible coverage within our state’s health insurance market. Based on the data, we know that the proposed health insurance taxes included in both the governor’s budget, as well as in SB 842, would make health coverage more expensive at a time when our local businesses are struggling to recover from a devastating pandemic.
As part of the Affordable Care Act, federal law requires insurers to comply with what’s called “federal loss ratio standards.” The law mandates that commercial health plans must spend a majority (80-85 percent) of premium dollars directly on enrollees and other improvement efforts. But the side effect of this policy is that administrative costs must be passed onto the consumer, by law. And consequently, the health insurance tax that would be levied on insurance plans would have to be included in rates.
What does this mean for local businesses that purchase insurance on the fully and self-insured market in Connecticut? Essentially, it means they are subjected to a sales tax. Look no further than our neighbors in New Jersey for the impacts of a tax on health insurance. Last session, the state adopted a similar policy to the one Connecticut is considering, and in return, premiums rose by almost $300 for New Jersey residents covered by the typical family health insurance plan. In Connecticut, the average midsize business could see losses of over $6,000 per year as a result of a tax on health insurance, while major employers in the state will see more than $60,000 in increased costs yearly if the proposed HIT tax is passed into law.
Businesses are struggling financially due to the havoc wreaked on our economy by the coronavirus pandemic. With already limited funds, businesses can react to higher health care prices in a number of ways. First, they can ask their employees to pay for more their insurance. Second, they can stop offering the benefit altogether. Both of these options work against our lawmakers’ goals of expanding affordable health coverage for all. Or third, they can offset the added costs elsewhere by limiting or stopping hiring altogether, or delaying much needed investments in their business. All of these scenarios would further inhibit a business’ ability to revitalize and grow.
Every day, Connecticut Benefit Brokers work to identify the most affordable and best quality health care plans for our state’s businesses, while also understanding the marketplace and its complexities. We have had this debate before, and we know that this proposed health insurance tax is bad for businesses, for employers and for employees. We shouldn’t be making decisions harder for our local employers and employees when they should be focusing on rebuilding their businesses. While expanding health insurance coverage for those who need it is critically important, this tax is not the way to do it. Connecticut lawmakers should not unnecessarily burden already struggling local businesses with this when our state is experiencing a budget surplus, on top of billions of dollars we are receiving from the federal government. We urge Gov. Lamont and the General Assembly to cancel the proposed health insurance tax.
John Calkins is the legislative committee chair of the Connecticut Benefit Brokers, a Chapter of the National Association of Health Underwriters.