As key components of the federal Affordable Care Act take effect in 2014 that mandate coverage and benefit levels, employers and health insurers also face an array of new taxes and fees that will drive up costs.
The estimated $775.2 billion collected over the next decade in new fees and taxes, intended to pay for the expansion of coverage to millions of people under the reform law, is directed at consumers, employers, health insurers and manufacturers of medical devices.
Ultimately, the charges will filter down to the premiums paid by employers and individuals.
“Even if a tax is nominally levied on health insurers, employers or manufacturers, economists believe that consumers end up paying most of it since these groups pass the cost on to consumers,” states an issue briefing on the 13 new fees and taxes from the Center for Healthcare Research and Transformation in Ann Arbor.
Among the new fees is the so-called PCORI assessment on self-funded health plans that went into effect in July. It’s intended to generate $3.8 billion between 2013 and 2022 to pay for the Patient-Centered Outcomes Institute, a not-for-profit research center created under the federal health reform law.
The fee is applied based on the average number of employees an employer has covered during its plan year. The fee was set at $1 per covered life during the first year and $2 per year starting in 2014. Employers affected by the fee should have already reported it.
Among the other levies already in effect is an excise tax on the sale of medical devices registered with the U.S. Food and Drug Administration. The 2.3-percent excise tax applies to items ranging from eyeglasses, contact lenses, hearing aids, over-the-counter devices, and durable medical equipment to devices produced by manufacturers such as Kalamazoo-based Stryker Corp. It will generate $29.1 billion from 2013 to 2022.
Stryker has said it will take a hit of $100 million in 2013 as a result of the excise tax.
Another new charge embedded in the law is a premium tax on health insurers that’s assessed in 2014 on premiums collected for fully-insured health plans. The premium tax will generate $101.7 billion over 10 years to cover federal spending tied to the ACA. There’s also a 3.5-percent fee assessed to insurers to support federal health exchanges that will sell coverage to individual and small businesses.
Employers do seem generally aware of the new taxes and fees associated with the ACA, although “I don’t think they’ve monetized them so that they are fully aware” of the potential cost implications, said Claude Titche, a tax partner at Beene Garter LLP in Grand Rapids.
“Our employers are running scared. They don’t know what to expect,” Titche said. “They know that they have gotten fairly sizeable increases in their premiums, and some of these fees that are going to be charged in the Affordable Care Act are going to increase those costs, and they are going to be passed on through the insurance carrier.
“So the employer is going to be the ultimate payer of all of these fees.”
At a recent seminar on the Affordable Care Act in Grand Rapids, benefits consulting firm McGraw Wentworth estimated that the new fees and taxes could, on average, add 9.9 percent to the cost of health coverage.
“Every employer has a cost to comply” with the law, said Katie O’Brien, account director at McGraw Wentworth.
Some taxes will affect employers more so than others. The PCORI fee, for instance, “is not going to break the bank by any means. It’s more of a nuisance than anything,” O’Brien said.
An Insurer Market Share Tax, a 1 percent to 3 percent levy on gross premiums that’s assessed based on an insurer’s size, “has the potential … to be pretty costly” to employers, she said.
Employers could avoid some of the new fees and taxes by dropping employee health coverage, but then they would get hit with an annual penalty of $2,000 per employee beginning in January 2015 for companies with 50 or more full-time workers, minus the first 30 people. The amount would increase to $3,000 per employee if they buy coverage through the health exchange and are eligible for a federal subsidy.
Dropping coverage also comes with the intangible issues of how it could affect an employer’s ability to recruit and retain employees, Titche said. He also cautions employers about merely dropping employees hours to below 30 hours a week to avoid the coverage mandate.
“That sounds good on a first-thought basis, but you still have to operate your business,” Titche said. “You want to be profitable, and usually if you have people that are there longer and work more hours, they are more efficient. So you can try to adjust your workforce but you may hinder your bottom line because you are less efficient, you don’t have good people, people are going to move to the next job and you’re going to lose the loyalty.”