HealthSource RI spokeswoman Maria Tocco recently wrote to me to suggest that I clarify my post on Governor Raimondo’s proposed HealthSource premium tax, and she’s correct that the last paragraph mixes up what it ought to have said. I wrote that “the bulk of individual” insurance customers (on or off of the health benefits exchange) would be paying the full tax, with a significant number more paying at least some of it. This was in response to the statement of the new HealthSource director that the bulk in the individual market would have their tax payments covered entirely by the federal government’s subsidies.
I should have written (and meant to say) that my contrary statement applied to “the bulk of individual and small group” insurance customers. Most of the available data combines the two markets, so I combined them for the analysis and was sloppy in my final statement.
While in the process of clarifying, I asked for more specific numbers from HealthSource, and while I can’t perfectly match their results (I get an estimated 3.86% tax on individual plans in fiscal year 2017 where they get 3.8%), I’m close enough for argument’s sake. The more important problem is the impossibility of precision. Age, family size, income, and choice of plan all have an effect, and the federal subsidies vary by individual — based on the second cheapest silver plan that they could buy. Since HealthSource isn’t going to hand over its entire database of customers, it’s very difficult to estimate.
But given the restraints, what can we say?
HealthSource has been projecting the results for fiscal year 2017, which is the first full fiscal year that the tax will apply. In that year, 52% of all individual and small group customers will be buying their insurance off the exchange, and all of them will pay the full tax, as will many buying on the exchange. For individuals, it’ll be 3.8%, or somewhere around $175, on average, and for small group customers, it’ll be about 1%, or somewhere around $68, on average. In short, as I explained last time, it isn’t true that the federal government will cover the tax for “the bulk” of customers.
What if we look at just the individual market?
For starters, my estimate (using HealthSource data) is that 16.8% of them, in FY17, will be off the exchange, so they’ll all pay the full tax. According to HealthSource, another 4.8% of individual exchange clients, or 4.0% of the total individual market, have too much income to be eligible for subsidies under any circumstances. That brings the “full tax” group up to 20.8%.
This is where the amount of the subsidies comes into play. One would assume that more of the higher-income clients will be older (so their premiums will be higher) and will purchase higher-end plans (so they’d be more likely to spend more than their subsidies, thus paying the whole tax). For my purposes, here, I’ll run the numbers twice, once assuming a benchmark plan (i.e., maximum federal subsidy) of $2,500 per year, which is what it would be for somebody in his or her mid-20s, and once assuming a benchmark plan of $3,500, which would be somebody in his or her mid-40s. (Keep in mind that we’re looking for the average, here.) I’ll also assume that all families are evenly distributed in groups of one-to-four-member families.
At the lower end, the tax on the benchmark plan would be $95. Of customers buying plans on the exchange, 34.2% would receive no subsidy (that’s 28.4% of the total market). Another 6.0% (or 5.0% of the total market) would pay part of the tax. In total, then 40.2% (33.4% of the total market) would pay all or some of the fee.
At the higher end, the tax on the benchmark plan would be $133. Of customers buying plans on the exchange, 22.7% would receive no subsidy (that’s 18.9% of the total market). By this rough calculation, no additional members would pay a part of the tax.*
Keep in mind that this would be the result if the tax were imposed at a flat rate. It’s not; it’s a percentage of premium. Notice that my range for the tax, here, is $95 to $133, but my projected average is actually $175. That indicates that the average customer will have a tax within that range, but the average actual payment will be significantly higher. Part of the reason for this is that 13% of customers buy gold plans, which are more expensive and will carry a higher tax to start with, and wealthier families will be more likely to have to pay it.
As I pointed out last time, no matter their income, gold-plan buyers will at least be paying the portion of the tax that’s above the benchmark. In the email to me, HealthSource argued that the inverse is true for bronze plans. A customer who buys a less expensive plan pays a smaller tax, so the extra tax that would be paid on the benchmark plan would actually serve to reduce the cost of his or her premium. Using round numbers, if the benchmark plan is $2,500 per year, with a tax of $95, a bronze plan at $2,000 per year would have a tax of $76, for a tax difference of $19. That would be built into the customer’s subsidy.
Unless I’m confusing things, though, there are two important differences between the gold and bronze analysis. First, there’s a lower boundary for the bronze, but no upper boundary for the gold; anybody whose subsidy is larger than the bronze plan (plus the tax) pays nothing anyway. Second, the question isn’t whether HealthSource has devised a tax that will increase income redistribution in the state, but how many people will actually pay some or all of the new tax. Indeed, the tax could be lowered (and fewer people would have to pay any of it) if it didn’t include this backdoor redistribution.
So where does this leave us?
I’ve put forward a whole bunch of percentages from different calculations that aren’t directly comparable, and I haven’t analyzed income breakdowns for the small group market. But here are the relevant points,:
- The groups subject to the tax will be those in the individual market and the small group market.
- 52% of them will buy plans off the exchange and will therefore pay the entire tax.
- Looking just at the individual market, 17% will be off the exchange, paying the full tax.
- 4% of the total individual market will be on the exchange, but with income too high to receive any subsidies under any circumstances. Total = 21% full tax.
- 19-28% of the total individual market will be on the exchange, but with income too high to receive any subsidies based on the costs as they’re likely to be in FY17. Total = 40-49% full tax.
- Up to another 5% of the total individual market will be on the exchange, but with income too high for their subsidies to cover their whole tax. Total = 45-49% full or partial tax.
- About 11% of the total individual market will be on the exchange, but will buy gold plans requiring them to pay some portion of the tax. We don’t know how many of them are already counted in our percentages, so we’ll leave the low end alone. Total = 45-60% full or partial tax.
- Some percentage will also buy silver plans that are more expensive than the benchmark and pay at least part of the tax. Because we don’t have any data to estimate this, right now, we’ll increase the maximum by the same amount as the gold plan purchases, which is probably a conservative guess. Total = 45-71% full or partial tax.
Even at the low end, I don’t know if I’d say that “the bulk of individual” insurance customers will have their entire tax paid for them, but at the higher end, it’s definitely not true. It’s also not true if we expand the definition to include the small group market.
In any event, tens of thousands of Rhode Islanders will see their healthcare costs increase in order to pay this tax to fund a government-run start-up company for which planning projections were wildly incorrect, for which their state-level elected officials never voted, and which was enabled by a purely party-line vote of the U.S. Senate on Christmas Eve some years ago, amid outright lies from the Obama administration about what it would do and explicit ignorance on the part of legislators about what was in it.
* As a caveat to this, note that HealthSource currently reports that only 12% of customers received no subsidy. A couple of things could account for this difference. For one, 9.9% of customers are currently small group customers, meaning that they’re receiving healthcare as an employment benefit. It may be that the profile of employees who work for companies that would take this route for a health benefit tend to have less income. For another, that was the percentage at the end of February for all plans “paid and unpaid.” Some portion of those folks won’t pay their premiums, meaning they’ll fall off the list, and that group is likely to skew toward the low end. That said, it would be reasonable to state that the low end of my range is too high.