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CHAMBER UPDATE: Health care reform Congress hidden tax


Date: 3/15/2012

CHAMBER VIEWS: Health care reform — Congress’ hidden tax unleashed

Sunday, March 11, 2012 10:16 PM EDT
By Mike Nicastro

We’re beginning to believe that there actually is one other “sure thing” besides death and taxes. That being Congress, in its infinite wisdom (said tongue in cheek) will pass laws they believe will help small business, which in reality will do just the opposite.

Nothing bears this out more clearly than the Patient Protection and Affordable Care Act (PPACA) most commonly referred to as Obamacare. We’ve discussed PPACA in previous writings and we will likely do so again.

For today however, we will focus on the “HIT.” HIT, the acronym for Health Insurance tax is a little known but nasty little detail buried deep in the volume of pages of PPACA. You all remember this is the bill that was so large that the majority of congressmen who passed the bill didn’t take the time (by their own admission) to read it.

Well they should have. If they had they would understand that beginning in 2014 this legislation made in haste will unleash a hidden tax that will zero in on small business. Small businesses, of whom nearly every financial expert and economist recognizes as the backbone of our economy.
As mentioned this will begin in 2014 with a goal to raise $8 billion in tax revenues annually growing to $14.3 billion by 2012. The aggregate of this taxation will equate to $87 billion in the first ten years and $208 billion in the next ten years.

So we are clear, the HIT will not be assessed directly to small business in the form of a bill from the government to the business. It’s more insidious. The HIT is to be levied on health insurance companies in the fully insured marketplace and will then be directly passed onto the 87 percent of small businesses that purchase insurance in that market.

During this debate the non-partisan Congressional Budget Office (CBO) confirmed that the HIT will in all likelihood be passed along to consumers. CBO Director Douglas Elmendorf in a September 2009 letter to Senator Max Baucus, D, Montana, stated the HIT, “would increase costs which would be passed on to purchasers and would ultimately raise insurance premiums by a corresponding amount.”

To counter this one of the myths that PPACA proponents continue to push is that the insurance companies can be forced to absorb the HIT and be precluded from passing on the costs. That simply will not happen.

PPACA already attacks insurer profitability with higher Medical Loss Ratios (MLR).

MLR is the percentage of every premium dollar that must be spent on medical expenses. With the law pushing MLR to 80 to 85 percent there is less than 20 cents on the dollar to cover administrative and operating costs. With numbers like that one can see that when it comes to investments health insurance is not a highly ranked industry.

Case in point, Fortune Magazine ranks health insurance as 17th in return on shareholder equity. That is worse and less profitable than the airlines. It won’t get better with the additional pressure from the MLR increases. Based on the projections the HIT, if not passed on to the consumer would lower insurer net income by 50 percent in year one and by 2018 profits would be cut by 85 percentage.

Keep in mind the consumer to whom this tax will be passed is also the same consumer with a 401(k) likely containing shares of the aforementioned insurance companies. The consumer and small business person pays the price either way.

The overall impact of the HIT will touch 2 million small businesses, their 26 million employees and another 12 million employees and the self-employed who purchase coverage in the individual market. A recent study by the CBO shows that on average the HIT will cost each family roughly $5,000 in higher premiums over the first decade of PPACA.

What we will find in very short order is that the PPACA, because of the HIT will increase the cost of health insurance. An outcome completely contradictory to what Congress assured small business the law would accomplish.

The biggest problem with the HIT is the domino effect that it will have across the broader economy. With the average cost to the small employer coming in at $500 per employee to start, they will have to consider a long list of less than positive options.

Let’s see, they can cut salaries by $500 each; reduce inventories; eliminate a paid position or two; defer capital purchases and other investments in the business; and/or, increase prices. None of which are options that encourage growth or create jobs. In reality the outcome will be just the opposite.

There are currently two bills in Congress that would repeal the HIT. They are HR 1370 and S 1880. If you are a small business owner, an employee of a small business or for that matter just a citizen who wants to see this recession end and jobs return, then you need to let our representative and senators know that the HIT needs to be repealed.

For more information you can visit www.stopthehit.com or visit with them on the Stop the Hit page on Facebook. You can also stop by the Chamber of Commerce office and pick up more information on how you can help to repeal this costly, unfair and hidden tax.

Health care reform will be critical to how our economy will perform in the future. With little gems like the HIT hidden in PPACA that future is not promising. As the political satirist, P. J. O’Rourke said, “If you think health care is expensive now, wait until you see what it costs when it’s free.” Enough said.

Michael D. Nicastro is president and CEO of the Central Connecticut Chambers of Commerce. Reach him at M.Nicastro@CentralCTChambers.org

* Please note, this article is being provided for informational purposes only.  It does not represent the view of the Farmington Chamber of Commerce or its members.   

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