With publication of the legislation enacting Governor Raimondo’s budget, as House bill 5900, some of the details left ambiguous in standard budget documents can be checked.  One of the more disconcerting is the supposed “fee” assessed on health insurance premiums in the state.

The budget presentation avoids naming what the “fee” is, but the talk and reportage during and after last night’s speech by the governor presented it as a fee structure similar to the way the federal government pays for the federal health benefits exchange.

Reviewing the legislation makes it clear that this is not the case.  The new revenue stream for HealthSource RI is simply a tax.

As I explained during the last legislative session, the federal exchange fee works like so:

• Health insurers are assessed a 3.5% fee on the premiums of plans sold through the exchange.
• They are not permitted to charge different prices for the same plan on or off of the exchange.
• Therefore, the price of the fees must be spread across all people who purchase that particular plan, whether on or off of the exchange.

According to the governor’s legislation, the new health insurance tax would work very differently:

• HealthSource will determine its budget for the year.
• That total will be allocated to the small employer market and the individual market in proportion to each market’s participation in the exchange.
• The insurer will increase all premiums in each market by the percentage necessary to generate the necessary money.

One consequence of this different method that must appeal to our progressive governor is that it shifts the tax burden toward Rhode Islanders with more-expensive plans.  No matter what the proportion of bronze, silver, gold, or whatever plans on the exchange, the tax is a flat percentage on all plans, so people buying more-expensive plans will pay more.

A consequence that surely appeals to the state’s government-first establishment is that there’s no escape from the tax.  It doesn’t matter whether insurers participate in the health benefits exchange or not, and it doesn’t matter if they sell different plans on or off of the exchange.

But the most important consequence is that this fee is completely unrelated to actual usage of the exchange.  Again, it’s just a tax, collected via health insurance plans.

According to the governor’s budget, HealthSource will cost $30.9 million to operate next fiscal year, but $24.7 million of that is still coming from the feds.  You don’t have to agree with me that the Obama administration is breaking the law by continuing to pay for state exchanges to understand that the operating costs of HealthSource are guaranteed to grow by leaps and bounds, as federal involvement tapers off.

In other words, nobody who cares about Rhode Islanders or the local economy should want to cross this particular Rubicon.  Once this new tax is law, all bets are off.  The success or failure of the exchange becomes immaterial.  The General Assembly never has to face the heat for increasing taxes.  The bloated government start-up company that is HealthSource RI becomes just another factor driving up the costs of Rhode Islanders’ insurance.