Smaller Companies Expected to Bear the Brunt of Little-Known Fee for Insurers
Patrick Norris, co-owner of manufacturing firm Norris International Services, expects higher health costs in 2014.
Norris International Services
When Patrick Norris renews his small business’s health-care plan in March, he’ll need to switch to a costlier plan that complies with the Affordable Care Act.
But that isn’t the only reason why Mr. Norris, co-owner of a manufacturing company in New Iberia, La., expects the premiums he pays on behalf of his 100 employees to be significantly higher in 2014.
Starting next year, small businesses are among those poised to bear the brunt of a little known tax created by the Affordable Care Act that will impose an annual “fee” on health-insurance companies. The fee is expected to bring in a total of $8 billion next year and as much as $14.3 billion by 2018, according to the legislation, and will be spread out among insurers based on the percent of the market they cover.
But the Congressional Budget Office and industry experts say the expense will largely be passed on to small businesses and consumers who buy their own policies in the form of higher premiums.
To be sure, the new health law will also impose other fees and taxes, including a $63 tax on each person covered in a health plan starting next year.
“I’m very frustrated because of the uncertainty,” says Mr. Norris, whose firm, Norris International Services LLC, makes tubing, drill stems and other products for companies in the oil and gas industry.
Mr. Norris says he has put plans to expand into new product lines on hold until he knows what his premiums will look like next year. He says his insurance broker projects they will increase by as much as 20%. “I could hire another 25 employees right now but I’m holding off,” Mr. Norris says.
When asked about the tax, a government spokeswoman said its purpose is to ensure that at least part of insurance companies’ profits from customers added under the Affordable Care Act “be reinvested to help the health care system work for all Americans.”
Large companies for the most part won’t be affected by the new fee because the majority of them are self-insured, meaning they pay their workers’ medical costs directly, instead of joining a traditional managed-care plan. About 83% of companies with more than 200 workers are currently self-insured, compared with just 16% of smaller firms, according to a Kaiser Family Foundation survey.
The new health-law tax, which increases annually, is projected to raise premiums for small businesses by an average of 1.9% to 2.3% in 2014, or about $150 per employee and $360 per family, according to a report by management-consulting firm Oliver Wyman in Milwaukee, Wis. By 2023, the firm predicts the cost could rise to an average of $360 per employee and $890 per family for small businesses.
Some efforts are under way to thwart the fee. A coalition called Stop the HIT, short for “health-insurance tax,” was formed in 2011 to oppose it and has since signed up more than 30 business organizations, including the U.S. Chamber of Commerce and the National Restaurant Association.