As Obamacare Hikes Medicaid Bills, Insurers Shift Cost To Taxpayers

Health insurers told to pay $150 billion in taxes over a decade to help fund Obamacare are now shifting at least part of that cost back to taxpayers.

Congress passed the insurer tax four years ago to help cover the uninsured under the Patient Protection and Affordable Care Act. Now, the industry is pushing to include some of the cost in contracts with Medicaid programs for the poor that are jointly funded by state and federal governments.

The strategy may add $36 billion to $39 billion to the cost of Medicaid over a decade, depending on how quickly the health program expands, according to an industry-funded study released today by the actuarial firm Milliman Inc.

The tax shift is “one of the awkward little complexities of the law that are only now coming to light,” said Dan Mendelson, chief executive officer at Avalere Health LLC, a Washington-based consultant. “It’s unusual.”

The insurer tax was among a variety of fees included in the act to make health-care companies pay their “fair share,” as U.S. Senator Charles Schumer of New York put it during the 2009 debate over the legislation. The idea was that insurers who would benefit from millions of taxpayer-subsidized customers under the law should contribute toward its costs.

With the tax kicking in this year, companies that manage Medicaid plans are arguing that the added cost should be shifted, and states seem willing to comply. The result is a “very circular” scenario in which the U.S. government raises money from insurers then hands at least part of it back, said Shawn Guertin, Aetna Inc.’s chief financial officer.

States will pay $13.3 billion to $13.9 billion more with the federal government picking up the rest of the cost, Seattle- based Milliman projected in its study. As a result, annual Medicaid payments will rise about 1.6 percent a year starting in 2015, the actuary found.

The tax is based on a company’s U.S. market share. It’s also expected to raise premiums by as much as 2.5 percent for employers and individuals who buy their own insurance, according to a 2011 estimate by Congress’ Joint Committee on Taxation. That would add $350 to $400 a year for the average family premium if the entire tax is passed onto consumers.

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