SHELBY LIVINGSTON December 17, 2019
Just in time for
the holidays, Congress appears ready to give health insurers several gifts
in its year-end spending deal, unveiled Monday and passed
by the U.S. House of Representatives Tuesday. One of those includes a permanent
repeal of a loathed industry tax that insurers have been lobbying to kill for
years.
Commercial health
insurers serving employers and individuals generally passed that tax, known as
the HIT, along to their members in the form of higher premiums. Medicaid
managed-care insurers are reimbursed for the tax by the states they contract
with.
But in the
fiercely competitive, fast-growing Medicare Advantage market, insurers have
historically absorbed at least part of the tax to keep their policies
attractive enough to enroll more seniors.
Repealing the HIT
for 2021 and beyond could boost Medicare Advantage enrollment as insurers keep
premiums flat and reinvest into supplemental benefits, insurance industry
analysts said. The tax repeal could also bolster Advantage insurers' bottom
lines.
"They are
going to be able to stabilize the price of their products … and I think in
general seniors would appreciate that. It will help more people choose to go
with Medicare Advantage as opposed to being in fee-for-service" Medicare,
said Sarah James, a senior research analyst with financial services firm Piper
Jaffray.
About a third of
Medicare beneficiaries, or 22 million people, are enrolled in Medicare
Advantage plans. Many have been taking advantage of CMS flexibility to give
seniors benefits that address their social needs. Deep Banerjee, an analyst at
S&P Global Ratings, said it's possible insurers will ramp up those benefits
even further if the tax disappears.
The health
insurance tax, which was meant to help pay for the Affordable Care Act, was in
effect in 2018 but suspended by Congress in 2019 after intense industry
lobbying. The budget deal, which still must be approved by the U.S. Senate and
signed by the president, would leave the tax in place for 2020 but repeal it
for the years after. The Internal Revenue Service estimated the tax would bring
in about $15.5 billion total next year, up from $14.3 billion in 2018.
The share of the
tax that each health insurer pays depends on its premium revenue. UnitedHealth
Group, parent company of the largest health insurer, reported a HIT liability
of $2.6 billion in 2018, while Anthem reported paying $1.5 billion, according
to company filings with the Securities and Exchange Commission. Combined, the
eight largest publicly traded health insurers paid nearly half of the fees owed
in 2018 at a little more than $7 billion.
Health insurers,
including Medicare Advantage plans, raise premiums about 2% on average to
recoup the cost of the tax, according to a 2018 analysis by Oliver Wyman
Actuarial Consulting commissioned by UnitedHealth Group.
Unlike insurers
in other business lines, Medicare Advantage plans do not pass along the cost of
the federal income taxes related to the nondeductible HIT, opting instead to
absorb those costs for competitive reasons. In all, the HIT amounts to a 10%
drag on Medicare earnings among for-profit insurers, said Michael Newshel,
analyst at Evercore ISI.
If the tax is
repealed, "the bulk of the benefit will accrue to seniors in the form of
better benefits, but a portion will also presumably accrue to margins for
for-profit insurers," he said.
Given its big
Medicare Advantage footprint, Humana, which paid a fee of a little more than $1
million under the HIT in 2018, would benefit the most from a repeal, James and
Newshel said. James estimated the repeal would boost Humana's earnings by 10%;
Humana reported $1.2 billion in net income in 2018. UnitedHealth's earnings,
meanwhile, would boost UnitedHealth's earnings by about 4%. UnitedHealth
reported net income of $12.4 billion in 2018.
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