It’s official, folks. As I’ve been preparing for my clients’ 2020 renewals, I’m reminded that the Health Insurance Tax (HIT), which was suspended by the Internal Revenue Service (IRS) for 2019, will become relevant again next year. I’m sure no one is jumping for joy over the return of this tax on insurance carriers that will end up increasing the total health insurance cost for employers and employees, but it’s important that we ready ourselves.
The HIT was created under the Affordable Care Act and applies to health insurers that offer fully-insured healthcare coverage – including Medicare, Medicaid, HMOs, individual plans, and most group employer-sponsored plans. Non-fully-insured multiple employer welfare arrangements (MEWAs) are also subject to the HIT.
The tax is meant to raise over $15.5 billion collectively from health insurance carriers in 2020, almost double that of the 2014 fee. Each carrier’s market share and premiums will determine the amount of the tax that is owed. This is expected to add around 2.5–3% to your fully-insured plan’s premium. No doubt, health insurers will be reluctant to lower costs to offset even a portion of this tax – renewals could look ugly and may be tougher to negotiate.
As the economy rides a roller coaster and employers are subject to more demands from state and national mandates, employers are getting squeezed and pushing these additional costs through to employees. In addition to the HIT, premium taxes add another 1–2% depending on the state – yet another reason plan sponsors should seriously consider alternative funding arrangements.