Debate over health reform's insurance tax heats up

A conservative budget expert estimated Wednesday that the health reform tax on insurance plans could raise family premiums by $5,000 over a decade, just as insurers are ramping up their efforts to get the tax nixed.

Douglas Holtz-Eakin, a former director of the Congressional Budget Office and senior policy adviser to Sen. John McCain's 2008 campaign, analyzed the tax's impact for the right-of-center American Action Forum. The law imposes an excise tax on health plans beginning in 2014, separately from a controversial tax on high-cost "Cadillac" plans that starts in 2018.

According to the study:

• "Consumers - small businesses and families - will shoulder the burden of these disguised taxes in the form of higher premiums for health insurance, reduced wages, and fewer resources available for hiring;

• "The detrimental impact on premiums is exacerbated by the peculiar policy decision to make the fees non-deductible for income tax purposes; and

• "The anticipated impact is as much as 3 percent or nearly $5,000 per family over a decade."

"Since debate over healthcare reform began, it was clear the President’s healthcare overhaul would be expensive, but now we know that fees on insurance companies will leave families with an additional and crushing $5,000 bill over the next decade," wrote Holtz-Eakin. "Contrary to some arguments, insurance companies will be unable to eat these costs as they would inhibit hiring and research and development, ultimately rendering these companies less competitive. Instead, this cost will be passed along to families and small businesses struggling through a sluggish economy."

The law's potential impact on premiums has created political headaches for Democrats. President Obama promised during the 2008 presidential campaign that families would save $2,500 a year thanks to reform, but the law requires many people to upgrade their coverage, leading to higher costs.

Medicare actuary Rick Foster has testified that the law will increase national health expenditures by $311 billion through 2019. But the administration says Foster undervalues cost-containment measures and that many Americans will still save money thanks to the federal subsidies they'll be entitled to in 2014.

The new estimate comes as health insurance trade associations are again drawing attention to the tax after focusing much of their efforts for the past year on the law's implementation.

"We've really had our hands full just making all the considerable changes," said Alissa Fox, senior vice president of policy and representation with the Blue Cross Blue Shield Association. "This tax is going to add hundreds of dollars to the cost of insurance for individuals and small employers. And that's something we are raising concerns with."

Karen Ignagni, president and CEO of America's Health Insurance Plans, called it an "unprecedented" tax that would "hit individuals and small business."

"That moves in the wrong direction, because anything that increases cost beginning in 2014 is going to be something that individuals and small employers look at very very carefully and are going to be concerned about," she told The Hill. "We're talking about (the tax and other provisions) again now so people (in Congress) can examine the issues between now and 14 and make changes for this to work, basically."