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ACA/Healthcare Reform

How will carriers implement collection of the Health Insurer Tax?

The Health Insurance Providers Fee, more commonly known as the Health Insurer Tax (HIT) was one of several taxes mandated by the Affordable Care Act (ACA). Insurers are obligated to add the HIT to every sold policy and forward the funds to the federal government. The HIT, adds 2-3% to the cost of each policy according to most experts. In December 2015, Congress approved a one-year suspension of the HIT starting January 2017. If Congress does not renew that suspension, starting January 1, 2018 the HIT will be charged on all policies. This leads to the question: How will carriers implement collection of the HIT?

In the individual market where all plans start on January 1st, it is anticipated that carriers will build the HIT into the rate. Likewise, in the group market, for those groups whose plan years start January 1, 2018, it is anticipated that carriers will build the HIT into the rate. As a result, rates for January will increase 2-3% in addition to any rate actions taken by the carriers.

However, for groups that renew after January, the method of collecting the HIT is more complicated. Carriers had to set rates for these groups in 2017 and by law cannot change rates during the plan year. If they can’t increase rates starting January 2018, how do they start collecting the HIT? The carriers we’ve spoken to are handling it this way:

When setting their 2017 rates, carriers anticipated that HIT would need to be collected for premium months starting January 2018 and continuing through the end of the group’s plan year. They calculated the total tax for those plan year months in 2018, divided the total tax by 12 and added the result to the monthly base rate for the full plan year. In short, they amortized the tax over the entire plan year.

So groups with any anniversary except January have been paying the tax since the beginning of their plan year, but only what’s owed for the months in 2018 that are in their plan year. It’s really the only way carriers could implement the collection given the requirement that they cannot change rates once a contract is in place.

Resources
America’s Health Insurance Plans analysis regarding the Health Insurer Tax.