Likely return of the health insurance tax to impact MA profits
By Susannah Luthi – ModernHealthCare – March 1, 2019
Congress appears unlikely to delay the health insurance tax next year. If that happens, Medicare Advantage plans would see the biggest impact, analysts and insurers say.
On Wednesday, a bipartisan group of House lawmakers introduced a suspension of the tax, known as the HIT, through 2021. The tax was in place for 2018, suspended in 2019 and is due to take effect again in 2020.
But as House lawmakers unrolled their proposal for another delay, senior congressional staff from both chambers and parties said they don't think it's likely to move before insurers start setting their ACA exchange rates next year.
One senior GOP aide said it's unclear how any of the smaller tax delays will get done, "let alone the big spending health care extenders."
Some insurance executives have been bracing for the possibility they won't get their delay. But they also haven't given up on urging Congress to step in and eliminate the tax or continue the moratorium from 2019.
In a quarterly earnings call in January, UnitedHealth Group CEO David Wichmann warned that the return of the HIT would increase healthcare costs by a total $20 billion for 142 million people.
"That causes the average senior couple to see their premiums raised by $500 per year and for families with small business coverage by about the same amount, around $480 or so per year," Wichmann said. "Our view is that outcome is unacceptable because healthcare already costs too much."
S&P analyst Deep Banerjee said a return of the HIT wouldn't necessarily affect insurers' profit margins for Affordable Care Act individual market exchange plans, where companies can pass the fee on to their customers through higher premiums.
However, he said, insurers are less likely to take this approach in the more lucrative Medicare Advantage market where competition between plans is so tight they don't want to risk losing enrollees.
The push for the HIT delay comes after the eight largest publicly traded insurance companies reported more than $21 billion in net income for 2018 on top of revenue of $718 billion, according to analysis by Modern Healthcare. Despite the HIT being in effect in 2018, insurers' earnings benefited from low medical cost trends, lower utilization of healthcare services, declining pharmacy costs and a lower tax rate, according to a report released Thursday by A.M. Best.
In a sign that Medicare Advantage insurers are worried about the HIT's potential impact on their markets, Humana CEO Bruce Broussard told investors earlier this month the HIT moratorium allowed Humana and the rest of the industry to make significant investments in benefits and drive better health outcomes, but its return will reverse that. "The return of the HIF in 2020 will negatively impact seniors across the nation in the form of reduced benefits and/or higher premiums," he said.
Broussard, during the company's first earnings call for 2019, said this is driving their lobbying push.
"We are working with partners to urge Congress to take legislative action to repeal the HIF for 2020 and beyond, recognizing that there is a sense of urgency given the rapidly approaching deadline for submitting bids for 2020 Medicare Advantage offerings," Broussard said.
On the flip side, UnitedHealth CFO John Rex in January indicated that the company is so diversified it's unlikely to feel a financial squeeze, warning that instead the tax would add to the cost burden of the insured.
"I'd be remiss to diminish $2.6 billion of our customers' funds just having been paid for the health insurance tax," Rex said. "That's still a very significant number for any company, I would say, and a burden for our customers."
In terms of the HIT's impact on premiums, Oliver Wyman Actuarial Consulting last year projected a likely increase of just over 2% annually. The firm predicted the biggest increase for Medicare Advantage — $241 per MA enrollee versus a $196 increase per person in the ACA individual market.
A senior Democratic aide said while there's been preliminary discussions on the staff level, the legislation doesn't seem to have a good chance of a House floor vote anytime soon.
And Rep. Earl Blumenauer (D-Ore.), who sits on the House Ways and Means Committee's tax policy and health panels, said this is partially because all the insurance taxes are figuring into the committee's broader discussion over where they want to go with taxes.
"For me, I don't think it's a good idea to be spun out on individual details until we've heard the big picture," the congressman told Modern Healthcare.
"There's a big agenda in terms of trying to deal with tax issues, and I think you don't want to deal with these things piecemeal until we find out where we're at, because they all interrelate," he added.
Reps. Ami Bera (D-Calif.), Josh Gottheimer (D-N.J.), Jackie Walorski (R-Ind.) and Kenny Marchant (R-Tex.) led the House proposal to delay HIT through 2021. Sens. Cory Gardner (R-Colo.), Jeanne Shaheen (D-N.H.), John Barrasso (R-Wyo.), Doug Jones (D-Ala.), Tim Scott (R-S.C.), and Kyrsten Sinema (D-Ariz.) led the Senate version in January.