Could it be that the federal government will be paying for their own tax? This interesting twist was recently revealed in a Milliman report detailing the impact of the insurance industry fee on state Medicaid programs and Medicaid health plans. Beginning in 2014 the health care law levies a tax on the health insurance industry at $8 billion. This amount increases to $14.3 billion in 2018 and is indexed to the rate of premium growth thereafter. An insurance company’s share of this tax is equal to their total share of the insurance market. Managed Care Organizations (MCOs) are included in this tax.
Texas currently operates its Medicaid program through contracts with private MCOs. Under this arrangement the state pays a fixed premium payment (i.e., capitated rate.) for each individual served under the program. This gives individuals a choice between which MCOs they can select to provide care. This arrangement has been successful at expanding consumer choice and reducing costs within the current Medicaid system. The companies the state contracts with to administer Medicaid will be assessed this new federal tax.
Milliman estimates that this new tax will have a 1.6 percent on the premiums of MCOs in Texas between 2014 and 2023 (the first ten years of full implementation). This will total $2.83 billion in taxes over this time period. Under Medicaid guidelines, states can only contract with MCOs that are actuarially sound and have actuarially sound premiums. An actuarially sound premium includes costs of care, overhead, compliance costs, profits, and taxes and fees. MCOs will include this insurance tax in their premiums leaving the net impact of the tax on the MCOs to be neutral. The state of Texas will ultimately pay this tax in the form of higher premiums from the MCOs.
The twist: Medicaid is jointly funded by the federal and state governments meaning Texas will only pay a portion of the tax. Milliman assumes Texas’ average Medicaid funding match rate will be 63.2 percent (meaning the Federal government pays 63.2 cents of every dollar). This includes the higher match rate for those individuals made eligible under the health care law’s expansion. With an average match rate of 63.2 percent, the state share of the $2.83 billion would be $1.041 billion. This leaves the federal government paying for approximately $1.8 billion of their own tax in Texas. Nationwide, the federal government will spend $23.5 billion paying their own tax on MCOs between 2014 and 2023 – another example of the unintended consequences of a poorly constructed health care law.
-Spencer Harris