The new healthcare reform legislation contains a tax that could spell the end of employer-sponsored health coverage for many small business employees. In just over one year, insurance companies will become subject to a tax called the Health Insurance Tax (HIT).
Small businesses already suffering under the weight of ever-rising premium costs will be disproportionately affected by this tax, which will be passed on to the carriers' customers in the form of increased premiums. It is time for your small-business clients to begin preparing for the very real possibility that employer-sponsored health care coverage will be prohibitively expensive after the HIT becomes effective.
How Does the HIT Work?
The HIT is a tax on insurance carriers imposed in proportion to the carrier's outstanding net premiums, meaning that insurance carriers with a higher market share will pay a higher rate. Though the HIT is technically a tax on insurance carriers that provide health insurance, the additional cost to insurers will be passed on to consumers in the form of higher premium payments.
The tax is set to increase each year according to an index based on net premium growth. In the first ten years that the HIT is effective, it is estimated that it will generate approximately $87 billion in revenue—increasing to about $208 billion in its second decade.
The proceeds from the HIT will be used to fund health insurance exchanges and finance subsidies for those without health coverage. However, by imposing a tax on health insurance carriers that will be passed on to small-business owners, the HIT essentially increases the number of employees that will need to rely on these subsidies.
Unintended Consequences
The HIT will have a disproportionate effect on small-business owners because it specifically excludes companies who self-insure; the vast majority of small businesses do not have the resources to self-insure. Further, small business owners have significantly less leverage to negotiate lower premiums with insurance carriers.
