Coverage of Governor Raimondo’s proposed new tax on health insurance premiums strikes me as highly misleading:
… most individuals who buy their insurance through HealthSource would find the tax, since it would be rolled into the premium, covered by their federal premium tax credits, said [HealthSource Director Anya Rader] Wallack. Of the roughly 30,000 Health-Source customers, 88 percent qualify for the credits.
“So the bulk of individual customers won’t be paying the premium assessment; the federal government will instead be paying it,” Wallack said.
Those who obtain coverage directly from insurers or don’t qualify for the credits wouldn’t gain that tax advantage.
If we’re particular about the use of language, then Wallack’s statement is simply not true. In a recent WatchDog article, I estimated that the 3.8% HealthSource tax on all individual and small group premiums in the state would have to be 9.1% if it were calculated based only on the plans sold through the exchange. That suggests that about 60% of all plans subject to the tax do not receive subsidies because they are sold outside of the exchange.
According to the latest enrollment data, 12% of Rhode Islanders who are buying insurance through the exchange also receive no subsidies. That means that only 37% of all people on whom the tax would be levied receive federal assistance for their premiums.
I’ve asked for clarification as to whether it’s actually true that the the federal subsidies will go up to cover the insurance tax. I didn’t think so, but with Obama as president the rules of government can change without notice, so let’s assume that charging the tax as part of a premium will indeed increase subsidies. That’s still not the whole story.
Premium subsidies are calculated as a cap that a person would pay for the second cheapest “silver” plan on the exchange (the “benchmark” plan), as a percentage of income. An individual who makes $10,000 a year is under the poverty level, so that would cap his annual insurance premium for a silver plan at 2% of income, or $200. Let’s say the benchmark plan is $2,500. The individual would pay the $200 and receive a subsidy of $2,300.
According to estimates, the new HealthSource tax would make the hypothetical benchmark plan $2,595. So, the low-income individual would still pay the $200, but receive a subsidy of $2,395.
However, that varies with with income and with the plan. For an individual making a little over 2.5 times the poverty level (around $30,000), the $2,500 benchmark would start to approach his cap. Maybe he’d receive some subsidy for the tax, but not all of it.
Moreover, the federal subsidy of the tax in the example would be held at $95. A gold plan at $3,500 would bear a tax of $133, which is $38 higher than the government subsidy would be. According to the enrollment data, this dynamic would affect all of the 13% of customers who bought gold plans and some portion of the 65% who bought silver plans.
In other words, “the bulk of individual” insurance customers would be paying the full tax, and a significant number more would pay at least some of it.*
* The phrase in quotation marks should be “the bulk of individual and small group.” See here for explanation.