Tax on healthcare policies set to resume next year

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Senior advocacy group says Medicare Advantage policyholders will take the biggest hit

A tax on health insurance policies under the Affordable Care Act (ACA), suspended by Congress for 2017, is scheduled to resume next year, increasing the cost of millions of health care premiums.

A recent study by the financial services firm Oliver Wyman, commissioned by UnitedHealth Group, estimates the tax will increase health insurance premiums by 2.6 percent in 2018 and between 2.5 and 2.7 percent in subsequent years.

The tax on health insurance providers, which is largely passed along to policyholders, is used to help offset the costs associated with the ACA. Next year, when the tax resumes, the Oliver Wyman study estimates the tax will increase the premium for an individual in the non-group market by $158 and by $500 per family.

Medicare Advantage

The increase will be greater for seniors enrolled in Medicare Advantage, Medicare Managed Care, and Medicare Part D. The Better Medicare Alliance (BMA), an advocate for Medicare Advantage policyholders, estimates those enrolled in Medicare Advantage and Medicare Part D will bear 20 percent of the tax burden.

The group says 19 million Medicare beneficiaries in Medicare Advantage will see their premiums rise by $245 per year. After that, the group says the increase could grow to $300 by 2023. Over 10 years, it could result in $3,000 in higher premium payments.

The group has released a poll showing 85 percent of seniors enrolled in Medicare Advantage are unaware their premiums are about to go up.

"This tax was suspended for 2017 by Congress because it was raising costs for seniors and people with disabilities - many living on low or fixed incomes," said Allyson Schwartz, CEO of BMA. "This survey shows that not only are seniors facing a major hit, even worse, the majority are grossly unaware without any opportunity to prepare or make their voice heard."

Schwartz says rising premiums would likely put Medicare Advantage policies out of reach for many older consumers.

Original Medicare covers 80 percent of healthcare services and many consumers purchase supplemental policies to cover the rest. But many purchase Medicare Advantage, which combines the two and often offers additional coverage Original Medicare does not.

Medicare Advantage popularity

BMA says Medicare Advantage plans are popular because they're affordable, simple, and provide supplemental benefits. The group says enrollees are also more likely to get preventive care and less likely to be admitted to a hospital.

According to Forbes, the healthcare tax amounts to a sales tax on health insurance policies. The tax seeks to raise a specific amount of money each year -- $14.3 billion in 2018 -- and divides the tax burden among health insurance companies based on their marketshare.

"In order to remain in business, as well as to satisfy state and federal actuarial requirements, insurers will essentially be required to pass most of this tax along to policyholders in the form of higher premiums, or possibly higher average out-of-pocket costs or reduced benefits," Forbes notes.

Sen. Cory Gardner (R-Colo.) and ten co-sponsors have introduced a bill to Congress that would postpone the tax for another year. Gardner said Congress needs more time to find ways to reduce health insurance costs.

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