[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE HEALTH INSURANCE FEE: IMPACT ON SMALL BUSINESSES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH AND TECHNOLOGY
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MAY 9, 2013
__________
[GRAPHIC] [TIFF OMITTED]
Small Business Committee Document Number 113-016
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missour
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENT
Page
Hon. Chris Collins............................................... 1
Hon. Janice Hahn................................................. 2
WITNESSES
William Dennis, Jr., Senior Research Fellow, NFIB Research
Foundation, Washington, DC..................................... 4
Ryan P. Thorn, President, Ryan P. Thorn Insurance Planning, Inc.,
South Jordan, UT, testifying on behalf of the National
Association of Health Underwriters............................. 6
Paul N. Van de Water, Senior Fellow, Center on Budget and Policy
Priorities, Washington, DC..................................... 7
Dean Norton, President, New York Farm Bureau, Elba, NY,
testifying on behalf of the American Farm Bureau Federation.... 8
APPENDIX
Prepared Statements:
William Dennis, Jr., Senior Research Fellow, NFIB Research
Foundation, Washington, DC................................. 26
Ryan P. Thorn, President, Ryan P. Thorn Insurance Planning,
Inc., South Jordan, UT, testifying on behalf of the
National Association of Health Underwriters................ 38
Paul N. Van de Water, Senior Fellow, Center on Budget and
Policy Priorities, Washington, DC.......................... 42
Dean Norton, President, New York Farm Bureau, Elba, NY,
testifying on behalf of the American Farm Bureau Federation 44
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Hon. Charles Boustany........................................ 47
MHPA - Medicaid Health Plans of America...................... 49
THE HEALTH INSURANCE FEE: IMPACT ON SMALL BUSINESSES
----------
THURSDAY, MAY 9, 2013
House of Representatives,
Committee on Small Business,
Subcommittee on Health and Technology,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Chris Collins
[chairman of the subcommittee] presiding.
Present: Representatives Collins, Luetkemeyer, Huelskamp,
Hahn, Schneider and Matheson.
Chairman COLLINS. Good morning. I call this meeting to
order.
We are joined today by our colleague, Congressman Jim
Matheson from Utah, who will introduce one of our witnesses.
Mr. Matheson is a lead sponsor with Congressman Charles
Boustany of Louisiana of the House bill to repeal the health
insurance providers' fee. As of this week, I believe that bill
has over 150 co-sponsors, and I am proud to be amongst them.
Thank you for your leadership, Mr. Matheson
I want to welcome all of our witnesses. We look forward to
your testimony. Special thanks to Dean Norton, president of the
New York Farm Bureau from Elba, New York, which I am honored to
represent.
Today we meet to examine the Health Care Law's new annual
fee on health insurance, which was included as a way to finance
the health care Law. Beginning in 2014, the law assesses a fee
on health insurance providers, which across the industry totals
$8 billion and increases to $14.3 billion in 2018, and will
continue to increase every year thereafter. The nonpartisan
Joint Committee on Taxation estimates the fee will exceed $100
billion over the next 10 years. Both the Joint Committee on
Taxation and the Congressional Budget Office said they expect a
very large portion of this fee to be passed through to the
purchasers of insurance in the form of higher premiums, driving
up the cost of insurance for families in all regions and small
businesses in all sectors.
Why is this a problem for small business? The health care
Law exempts self-funded plans from the fee, but it applies to
fully-funded ones. Small business owners typically do not have
a large enough pool to self-insure, so they face the higher
premiums in a fully-funded group plan, precisely the plans to
which this tax applies. Of course, small business owners with
more than 50 full-time equivalent employees do have the choice
not to offer coverage, but then they pay the $2,000 per
employee employer mandate penalty.
In fact, a March 2013 study released by the National
Federation of Independent Business Research Foundation
estimates the fee will raise the cost of employer-sponsored
insurance by 2 to 3 percent in 2014, imposing a cost of nearly
$2,000 per family by 2020. The study also predicts that the
price increases caused by the fee will reduce private sector
employment by up to 262,000 jobs by 2020, with the majority of
the losses falling in the small business sector.
We are pleased to have a witness from the NFIB here today
to discuss the study's findings in greater detail. We will also
hear from small business owners about the burden of the fee.
The Joint Committee on Taxation has said this fee is
essentially an excise tax based on the sale price of health
insurance, so it will not be tax deductible. The Joint
Committee estimated that repealing the fee would have the
effect of stopping the 2 to 2-1/2 percent increase per year and
eliminating the fee could reduce the average family premium in
2016 by $350 to $400, which represents the increase that would
otherwise occur.
To put this issue in context, we note that according to the
U.S. Chamber of Commerce Quarterly Small Business Survey, the
numerous requirements of the Health Care Law are now the
biggest concern for U.S. small businesses, bumping economic
uncertainty from the top spot after two years. These are the
small businesses, our nation's best job creators, that we are
relying on to bring our still anemic economy back. They are the
same small businesses whom we are asking to shoulder more and
more mandates, taxes, regulations, and cost increases.
Again, I want to thank our witnesses for being here today.
I now yield to Ranking Member Hahn for her opening statement.
Ms. HAHN. Thank you, Mr. Chairman.
So before we deep dive into examining the possible impacts
of this one part of the Health Care Law, it is important that
we step back and I think remember that the Affordable Care Act
has done a lot to make health insurance more affordable, more
dependable, and more meaningful for American families and
businesses. Under the Affordable Care Act, children can no
longer be denied coverage because of a preexisting condition.
Parents can keep their son or daughter on their insurance until
age 26. Insurance companies are forbidden from canceling a
policy for someone who has gotten sick or been hurt just
because they had a typo on a form a decade ago. If an insurance
company spends too much of the money it is paid on things that
are not about quality health care, it has to refund its
customers. The ACA empowers small businesses in the health
insurance market through the exchange and offers significant
tax credits to support health insurance for some of the smaller
small businesses. Millions of Americans are already feeling the
positive benefits of the Affordable Care Act in their health
and their pocketbooks.
Now, of course, I think there are ways that we can improve
this law. I, for one, think we might have to do something to
bring these hospital chargemaster list prices into the light of
day, but as we move towards the implementation of some of the
biggest components of ACA next year, there may well be some
things we need to do to adjust and correct issues that come
along.
Today we are examining how one component of the law, the
tax on health insurance companies, may have an undesirable
impact on consumers, including small businesses, in the form of
increased premiums. As we examine the problems this fixed fee
could impose, it is important to understand the origins of the
provision. It was meant to raise $90 billion from insurance
companies, not their customers. With the insurance mandate
poised to deliver millions of new customers to insurance
companies, it would seem fair to ask the insurance companies to
pony up some of the cost of the law that was going to give them
so many more millions in customers.
However, these companies threaten to recoup the fee from
consumers through increased premiums rather than absorb the fee
themselves. Because higher premiums present a real risk to
small employers and their ability to invest and grow, I am glad
we are investigating this issue. We are looking for feedback to
see how likely increased premiums are due solely to this
section in the Affordable Care Act and what they would mean for
our businesses. But at the same time we must recognize the
difficulty presented in our task due to the number of major
insurance market reforms that also become effective next year.
These consumer protections in conjunction with exchanges, are
expected to alleviate the continued rise in premiums over time.
Market forces will have a major impact on how insurance
providers react to being assessed a premium tax, while also
being tasked with implementing other insurance reforms.
Accordingly, this hearing will not only explore the burdens of
higher premiums but also how the Health Insurance Tax will
interact with other provisions contained in the ACA like the
medical loss ratio and rate review panels.
Just as with any other legislation that brings major
changes, there has been much speculation about the positive and
negative effects the ACA will have, particularly on our small
businesses. For this reason it is important that we consider
all aspects of the Health Insurance Tax before acting
prematurely to eliminate it entirely. At a time when we are
facing budgetary burdens, we must work to come up with a
realistic remedy. The unintended consequences of a health
insurance tax on small employers could affect their ability to
provide affordable health insurance while also growing their
business.
This hearing serves as a starting point to examine this
issue and start a dialogue so we can address it immediately.
I want to thank all the witnesses for being here today. I
look forward to your comments, and I yield back, Mr. Chairman.
Chairman COLLINS. Thank you Ranking Member Hahn.
We are going to have votes probably at 10:30, 10:35. I
think we are going to have plenty of time to get through the
opening statements of our four witnesses at which time we will
have to adjourn until after votes and then we will come back at
that point in time and continue. So I just wanted to make that
clear.
Also, to explain the timing lights to our witnesses in
front of you, you each have five minutes to deliver your
testimony. The light will start out as a green light and with
one minute remaining the light will turn yellow. And finally,
it will turn red at the end of your five minutes. And if you
could try to keep your time within that we would appreciate
that especially with our voting schedule coming up.
Our first witness is William Dennis, Jr., who is a senior
research fellow with the NFIB Research Foundation in
Washington, D.C. I referred to some of the studies and reports
in my opening comments. Mr. Dennis has directed the NFIB
Research Foundation since 1976. Welcome, Mr. Dennis. You have
five minutes to present your opening testimony.
STATEMENTS OF WILLIAM DENNIS, JR., SENIOR RESEARCH FELLOW, NFIB
RESEARCH FOUNDATION; RYAN P. THORN, RYAN P. THORN INSURANCE
PLANNING; PAUL VAN DE WATER, SENOR FELLOW, CENTER ON BUDGET AND
POLICY PRIORITIES; DEAN NORTON, PRESIDENT, NEW YORK FARM BUREAU
STATEMENT OF WILLIAM DENNIS, JR.
Mr. DENNIS. Thank you very much, Mr. Chairman.
I am accompanied today by Michael Chow, who is a senior
policy analyst with us who actually did the assimilation
itself, so if we get too deep in the weeds I have my technical
expert with me.
I also am going to strike some of my initial comments since
you very well described what we are talking about here and that
kind of thing. But let me just summarize what the health
insurance premium tax is. It has four characteristics. It is
large, it is highly inequitable, it is nontransparent, and it
cascades. And so in effect what it does is raises the costs for
smaller businesses, it worsens our competitive position, and
ultimately it gives those small business owners without health
insurance another reason for not providing it to their
employees.
The simulation which we have attempts to determine the
economic impact. We used a BSIM module of something called a
REMI model. Now, the REMI model is a very standard common model
used by many folks. To give an example, we not only use it but
the AARP, NEA does. MIT has been a client for a while.
University of Michigan. The Democratic Policy on the Senate
side has been, so it is a generally well recognized model.
As we proceeded with it there are lots of moving parts when
you try and estimate things like this, and what we attempted to
do with these moving parts is to, as much as possible, be
conservative in their use. By conservative in this case I
simply mean that we try to minimize any potential extremities
that would and use conservative assumptions. For example, we
assume that there would be constant employer offerings, that
they would not change. That is an arguable thing but that seems
to be the most reasonable thing we have. And there are other
similar types of things such as the constant distribution of
insurance types--same number of family policies, same number of
individual policies, plus one policies, and so forth.
An initial question was what will the tax rate actually be
since it was not initially put into the law as any particular
rate, and we did not feel we had the expertise so we relied on
two sources to come up with our estimates. We used the Joint
Tax Committee and we used Doug Holtz-Eakin's estimate. And, of
course, he is the former chairman of the Congressional Budget
Office. I will get that right yet. And so we used 2.5 and 3
percent and simulated both of those. We also used different
rates of premium inflation because that is a matter of dispute.
No one knows quite what that is going to be as time goes on.
Some are arguing it will be relatively low. Some are arguing it
will be relatively high. So we use basically 5 percent annual
increase to 10 percent annual increase with increments in
between.
These results yielded a total estimate of 146,000 to
262,000 lost jobs, 59 percent of which would be in small
business. It is also a cumulative loss of up to $184 billion in
lost output. So it is a significant impact. Some would argue it
could be bigger but it certainly is bigger, and the number that
I have just given you include all the feedback that comes from
the reinvestment of the money. So in effect, we have also
included not only the jobs lost but the jobs that would be
gained through health and things of that nature.
So in sum, what we are doing is we are collecting and
spending $100 billion of a highly inequitable tax to yield
essentially a quarter of a million lost jobs and, what, $175
billion to $200 billion in lost GDP over a decade.
Thank you, Mr. Chairman. I would be happy to answer any
questions you may have.
Chairman COLLINS. Thank you, Mr. Dennis.
At this point I would like to yield to Representative
Matheson, who will introduce our next witness.
Mr. MATHESON. Well, thank you, Chairman Collins. Thank you
for holding this hearing. It is particularly important for
small business because, as you know, this premium tax applies
to fully-insured plans. It does not apply to self-insured,
which are more large corporations. So I am glad I am holding
this hearing, and you mentioned my role with Mr. Boustany on
the legislation to repeal this particular tax. My purpose in
being here today is to introduce a good friend and a
constituent of mine, and someone whose family has known mine
for a number of years. Ryan Thorn is a health underwriter from
South Jordan, Utah. And there he has serviced Utah small
employers for over 30 years, and he is a small business owner
himself. He served in various capacities with the National
Association of Health Underwriters and he is currently a vice
president of that organization. It is fair to say that Ryan has
a great understanding of the small business marketplace and the
mechanisms at play that affect business costs, and I think his
testimony and answers should be very important for this
committee to hear as this is someone who is balancing the books
for his own small business and he is also providing health
insurance and consultation to other small businesses as well. I
have always found him to be a very forthright individual who
has provided me with good information over the years to help me
understand the issues. I am pleased he is here today to testify
before this Committee. And I will yield back my time.
Chairman COLLINS. Mr. Thorn, if you could deliver your
opening remarks.
STATEMENT OF RYAN P. THORN
Mr. THORN. Thank you, and good morning.
My name is Ryan Thorn. As mentioned, I do own an insurance
agency in South Jordan, Utah. I am self-employed with one part-
time employee. I am here on behalf of the National Association
of Health Underwriters or NAHU.
I have been involved with NAHU since 1993 and currently
serve on the national board. I help my clients purchase health
insurance coverage and service their benefits all year long.
Almost all of my clients are self-employed or have less than 25
employees.
I would like to thank the House Small Business Committee
for inviting me here today and for my congressman
representative Jim Matheson, and also my senator, Orrin Hatch
as they have both sponsored bills to repeal the annual fee on
health insurance premiums included in this law which will have
serious financial consequences for Utah businesses and
consumers. While technically paid by the carriers that issue
individual and fully-insured coverage from 2014 on, Utah
insurers have confirmed back to me that the tax will be passed
down to consumers. The direct impact on premiums will be
staggering.
I have included Utah's data in my written testimony to each
of you, but in short, it averages out to be about $500 per year
for families and $200 a year for individuals. It
disproportionately hits individuals and small business owners,
the people who have been hurt most by these challenging times,
and this tax never goes away.
Among my clients, the cost of health insurance is a huge
concern. In preparation for today, I contacted several of them
to share their thoughts. One longtime client wrote, ``We have
always tried to take care of our employees but it is becoming
impossible at this rate.'' Another explained, ``We currently
pay 75 percent of insurance premiums for all of our employees
and their families. We have historically provided this degree
of benefits because of our strong commitment to our most
valuable asset, our employees. Frankly, ObamaCare's multiple
hidden taxes, such as the HIT, scares the daylights out of us
and threatens not only our ability to provide adequate
insurance coverage for our employees and families but also the
very existence of our company.''
The bottom line, the ACA and its national health insurance
sales tax is causing tremendous anxiety for American employees.
One of my clients said, ``Freedom brings happiness. I just do
not find happiness anymore from what the government is doing to
me.''
This tax has no purpose but to increase federal revenues.
It does not make the markets work better or target poor
behavior choice, such as smoking. It is a huge expense for
individuals and small businesses, larger than the device and
pharmaceutical taxes combined.
The members of NIHU and I believe it is inherently unfair
to finance health care reform by taxing people who are doing
the right thing by buying private coverage. I have made my
living for nearly 30 years helping people buy private health
insurance, so I know when prices go up people buy less or
simply forego coverage altogether. I am afraid this tax and
other cost drivers will incentivize the younger and healthier
people not to buy coverage until they need medical care. The
resulting adverse selection will make the cost of health
insurance even higher for everyone.
The impact of jobs will be huge. Another client said, ``The
activation of this law and tax will likely prevent me from
hiring new employees.'' Besides not hiring, employers will
change jobs from full-time to part-time status since most part-
timers are not offered benefits. Of course, this is to the
detriment of the employees whose hours will be cut. We are
simply going in the wrong direction.
Finally, on a personal note, my wife Robin, and I spend
just under $500 a month on our $4,000 deductible family HAS
policy, which is a significant expense. Due to other ACA
pricing changes, premiums will be going up an average of 28
percent next year for Utah families like mine. That is on top
of the HIT tax and other fees. Factor in the law's MLR
requirements, which by the way decreased my personal business
income by 30 percent. It is hard to call this law the
Affordable Care Act, at least in the Thorn family.
I consider it an honor to have been invited to share these
thoughts with Congress today and the impact this HIT tax will
have on small businesses and individuals. Thank you very much.
Chairman COLLINS. Thank you, Mr. Thorn.
I would now like to yield to Ranking Member Hahn for the
introduction of our next witness.
Ms. HAHN. Thank you, Mr. Chairman.
It is my pleasure to now introduce Mr. Paul Van de Water.
Mr. Van de Water is a senior fellow at the Center on Budget and
Policy Priorities where he specializes in Medicare, Social
Security, and health coverage issues. Previously, he worked at
the Congressional Budget Office for over 18 years. Welcome, Mr.
Van de Water.
STATEMENT OF PAUL VAN DE WATER
Mr. VAN DE WATER. Thank you, Ms. Hahn, for that kind
introduction. And Mr. Chairman, I am pleased to be here with
all of you this morning.
The Affordable Care Act will extend health insurance
coverage to 27 million people and help ensure that Americans
have access to affordable coverage. And it will do so in a
fiscally responsible way. In fact, the congressional budget
estimates that health reform will reduce the deficit modestly
in its first 10 years but substantially in the following
decade.
To pay for this expansion of health coverage, the ACA
levies taxes on or reduces Medicare payments to businesses and
industries that will directly benefit from health reform. The
fee on health insurance providers, also known as the Health
Insurance Tax falls into this category. The fee does not apply
to large employers that self-insure, those that pay the cost of
their own employees rather than purchase insurance in the
commercial market. This is reasonable since most large
employers already offer health insurance and will be largely
unaffected by health reform.
As with any excise tax, supply and demand will determine
how the tax's burden is ultimately split between providers and
purchasers. Insurance companies have recently turned in very
strong financial results and thus are well positioned to bear
some of the tax, but a portion of the tax is likely to be
passed on to consumers. The Joint Committee on Taxation, as I
think another witness has mentioned, estimates the premium
subject to the fee will be 2 to 2-1/2 percent higher than they
otherwise would be.
But that is only part of the story. As Congresswoman Hahn
mentioned in her opening statement, health reform also contains
many provisions that will slow the growth of premiums. The new
health insurance exchanges will increase competition among
plans and create economies of scale. Standardization of
benefits and prohibition of medical underwriting will reduce
administrative costs. The individual mandate will help bring
more healthy young workers into the insurance pool. Premium
increases of 10 percent or more are subject to state or federal
review, and insurers must provide rebates to their customers if
they spent less than 80 percent of premiums on medical care.
The ACA also includes a large number of initiatives to identify
and implement more efficient ways of delivering medical care
services.
All things considered, the Congressional Budget Office
estimates that health reform will slightly reduce premiums for
employer sponsored health insurance in the near term. For
employers with more than 5 workers, CBO estimates that the law
will reduce average premiums by up to 3 percent in 2016
compared to what they otherwise would be. For small employers,
the estimated change in premiums ranges from an increase of 1
percent to a reduction of 2 percent. And for workers and firms
that can benefit from the ACA's tax credit for small employers
the cost of insurance will drop by 8 to 11 percent.
Now, claims that the Health Insurance Tax in particular or
health reform in general will kill jobs are unfounded. The
Congressional Budget Office foresees only a small net reduction
in labor supply, primarily because some people who now work
mainly to obtain health insurance will choose to retire earlier
or work somewhat less, not because employers will eliminate
jobs. And if you would like in questioning I would be happy to
indicate why I think the problems are with the study from the
NFIB.
In conclusion, the Health Insurance Tax forms part of a
carefully thought out structure to expand health insurance
coverage and slow the growth of health care costs without
adding to the budget deficit. Any effort to modify or repeal
this tax must not undercut any of these three crucial
objectives.
Thank you, Mr. Chairman.
Chairman COLLINS. Thank you, Dr. Van de Water.
Our final witness is Dean Norton, who is president of the
New York Farm Bureau. Mr. Norton is a senior agricultural
consultant with Freed Maxick and Battaglia, a local CPA firm in
the Buffalo, New York-Western New York area. He is a
constituent of New York's 27th Congressional District, which I
am honored to represent, and his family owns a dairy farm in
Elba, New York. He is testifying today on behalf of the New
York Farm Bureau.
Welcome, Mr. Norton. You have five minutes to present your
testimony.
STATEMENT OF DEAN NORTON
Mr. NORTON. Thank you, Mr. Chairman.
I appreciate the opportunity to appear before you today on
what is a serious concern for my farm, my neighbors' farms, and
those all across this great country. The HIT tax ultimately
will hit me and my employees and our wallets and shrink the
health care coverage my family's farm is able to provide.
I am the fifth generation of Nortons to farm on the same
plot of land in Elba, New York, dating back to 1906 and my
Great Great Great Grandfather Bloon. Oak Orchard Dairy
encompasses 1,000 acres of cropland and we milk about 900 cows
a day. We also have a custom trucking operation for forage and
commodity harvesting, and my wife Melanie and I operate DMCK
Cattle Company, which leases cows back to neighboring dairies.
In addition, it has been my privilege, as has been mentioned,
to serve as the president of the New York Farm Bureau for the
last four years, and I also serve on the American Farm Bureau
Board of Directors.
A recent Congressional Budget Office report confirms that
the HIT tax would be largely passed through to the consumers in
the form of higher premiums for private coverage. My family's
farm and countless other small businesses will bear the brunt
as consumers. Small businesses are the backbone of the American
economy. Farmers are small businesses, and many of us offer
health care coverage for our employees. Most farmers and other
small businesses do not self-insure because we do not have a
large enough pool of employees. Instead, small family farms,
like myself, purchase health insurance on the fully-insured
market which the HIT tax is levied on. And that is why we are
going to feel the full force of the HIT tax as the health
insurers pass on the cost to family farms. It is expected to
cost, as has been mentioned, $100 billion over the next 10
years. That translates to $400 more per family per year. That
is a hit that many families cannot afford. You are talking
about money that could buy a month's worth of groceries. And do
not forget, those of us in rural areas already pay a
disproportionate share of health care costs than those who live
in urban areas.
Keep in mind these costs are only going to make it tougher
for our farm to operate. Dairy farming by nature is highly
unpredictable. We have no control over the price of milk, which
varies greatly from year to year. Also, the price of feed for
our cows and fuel has been rising rapidly, as have the farm's
health costs. Health care costs for small businesses have
doubled since 2000. Imagine trying to budget with all those
uncertainties every year.
In order to keep up with the rising expenses of employer
provided health insurance, we have been forced to trim costs.
It was necessary for the farm to significantly change the cost
structure of our insurance plan. We have turned to a highly
deductible policy that only covers 50 percent of the insurance
costs at this time. We used to cover 90 percent. In turn, our
employees now have to contribute a larger portion of their
income when they seek medical attention. I think we could all
agree that this could be a disincentive for people to seek care
in some instances. To compound the problem, we now only cover
half of our employees than we once did, and keep in mind this
was all before the HIT tax. Now we have to reevaluate our
health insurance coverage again.
Do we want to offer less health care coverage? Absolutely
not. Health insurance is a benefit that we need to attract high
quality, dependable workers. Milking cows is a 7 day a week
business, 365 days a year. Without our hardworking employees we
would have no family farm.
For our trucking business, it runs through our very short
harvest season where missing out on a single day can be the
difference between profit and loss. It is very important we are
able to offer reasonable health insurance if we are to obtain
the workers we need to stay in business. Just as important, it
is good for our employees, their families, and our communities
that we keep them healthy. The HIT tax will hurt the very
people that it was intended to help. It means that it will be
harder to afford health care for my family, my employees, and
for farms across this country.
In conclusion, I would encourage all members of the House
Small Business Committee to be sponsors of the bipartisan bill
HR 763, introduced by Representative Boustany from Louisiana
and Representative Matheson from Utah. This bill will repeal
the annual fee on health insurance providers that was enacted
by the Affordable Care Act.
I appreciate the opportunity to share my story, and I look
forward to your questions.
Chairman COLLINS. Thank you, Mr. Norton.
We will start the questions as we watch the clock to see
when we may be called out to vote. I think from hearing the
opening testimony, a good opening debate comment might be
concerning whether or not insurance companies will in fact
attract so many more customers if their profits will skyrocket
to the point they do not have to pass much of any of this tax
onto the consumers. I understand and paraphrase Dr. Van de
Water's comments that this was one of the reasons that this tax
is levied on the product offerings that most small businesses
offer because, in fact, they will get so many new customers,
they will make money, and they will be able to absorb a large
part of this.
So maybe I would ask each of you to comment, because I know
my own observations are--especially concerning the young and
the healthy now that the companies cannot charge more than 9-1/
2 percent of their W-2 wages, and Mr. Thorn, you might comment
on the fact there is no longer just a pure single policy. Those
policies have to include the dependents of the families. We
used to have single family; now we have got single plus
dependents, which is a more costly policy, and then the spouse
will come on board. So you might speak to that.
My concern is just the opposite. There will be fewer and
fewer policies. The young and the healthy will, in fact,
understand that they can drop health insurance all together
because there is no penalty for preexisting conditions. Why
would they have health insurance at all? And also, companies
are likely, as I talk to them, take employees, drop them to
part-time so they will not get insurance which certainly will
mean fewer policies. Then lastly, the cost of a penalty at
$2,000 is less than most companies pay for insurance and you
might see a significant number of companies dropping health
insurance, which actually would reduce the number of customers,
not increase them as Dr. Van de Water testified.
All four of you in good open debate, that is why we are
here. If you can comment on some of those. Start with Mr.
Dennis.
Mr. DENNIS. First of all, I think a lot of us are operating
on a good deal of speculation quite frankly because what we
have seen as time goes on is we keep asking small business
people what they are going to do, so on and so forth. A lot of
them really do not know what is going on. But those that we
engage and talk to tell us indeed that of those that do not
have it, they are less likely to have it. Those that do are
casting about for ways to get out from underneath a lot of
this. Most of them do not want to get rid of their health
insurance, but I think over the longer period, come push to
shove it is our judgment that in all probability will decline.
How much? I do not know.
Chairman COLLINS. Thank you, Mr. Dennis.
Mr. Thorn, as someone who is selling these policies, we
would be interested in your comments.
Mr. THORN. It is interesting as I meet with clients every
day and the underlying concern is the uncertainty as was just
mentioned. They are literally scared to death as to the
unknown. They are trying to do the right thing for their
employees but they are looking at this huge expense growing
with margins are already so thin. Bring on another 500 bucks
HIT tax. Sure, I would love to. It just is not going to happen.
And I think part of the problem, and as I talk to the carriers
in my state anyway, they did indicate it will be passed on to
the consumer, to the small employer owner. And so I think we
have a trickledown effect. So if that tax is passed down to the
consumer and all of a sudden we have got more people opting out
because I cannot afford this anymore; that 500 bucks just put
me over the edge, you are going to have less revenues coming in
to the insurance carriers. So that is going to be a trickle
down problem.
I also see from my own experience you have got a lot of
small businesses who are looking at cutting hours, the opposite
of what they really want to do. And instead of being able to
support a full-time family and give them a good, decent wage,
in order to fit their own budgets they are going to have to cut
their own hours down. So that is going in the wrong direction
as well.
Chairman COLLINS. I share the concerns.
Dr. Van de water, if you could comment.
Mr. VAN DE WATER. Certainly. As I said, Mr. Chairman, I
think there does seem to be a consensus among economic analysts
that at least some of this tax will end up being passed forward
to consumers. The Joint Committee on Taxation, whom I cited,
which is Congress's nonpartisan staff agency, has estimated an
increase of about 2 to 2-1/2 percent in premiums if one were to
look at the effect of this tax by itself. So that I think we
can take pretty much as a given. But the point is there is a
whole heck of a lot of stuff going on as well.
I was really taken by Mr. Norton's comment that his
insurance costs had doubled I think you said over the past 10
years or so. That is a huge increase. In relation to that, a 2
percent tax is pretty small and can easily be swamped by these
other factors in the Affordable Care Act that I mentioned and
that Ms. Hahn referred to.
As far as whether insurance companies are going to get more
business, I think there is virtually no doubt that they are
going to get substantially more business, again relying on
Congressional Budget Office estimates you see huge increases.
And again, knowing I was going to have a fellow witness from
New York. I just came across a study yesterday from the state
of New York about the growth of the small group and the
nongroup market in New York, and this was done by I think the
consulting firm of Deloitte. They estimate a huge increase in
nongroup insurance in New York of over tenfold and a modest
increase, but an increase nonetheless, in small group coverage.
So again, I think that the consensus there is overall there
will be a very substantial increase in insurance coverage and
in business for commercial insurers.
Chairman COLLINS. Thank you, Dr. Van de Water.
Mr. Norton.
Mr. NORTON. It has been my experience in the agriculture
industry that any time a regulation or a mandate has been
passed down to our suppliers or vendors that eventually I am
the one paying for that tax or regulation, so I would say that
there is probably a good chance that yes, we will be doing
this.
We were all talking about the uncertainty. I would just
mention that I know of at least two farmers--Mr. Chairman, your
district, because of the uncertainty of immigration reform,
because of the uncertainty of the Affordable Care Act, the HIT
tax and what does it mean to their business--they have taken I
would consider drastic steps, and they have moved away from
being specialty crop growers--and by specialty crops I mean
fruits and vegetables, like cabbage, cucumbers, apples, and
whatnot, and they have made the decision that this year they
are going to move away from growing those type of highly labor
intensive crops because of the uncertainty with all these rules
and regulations and immigration reform, and they are going to
go to a mechanized type of agriculture or corn, soybeans,
something that can be planted and harvested with machines. And
to me that is a loss not only to that farm but you are talking
30 employees that will not be employed by a farm. You are
talking about thousands and thousands of dollars that are not
going to be in the community anymore. So to me this uncertainty
is already having a drastic effect on what is happening in the
agricultural community.
Chairman COLLINS. Thank you, Mr. Norton.
Again, one of the reasons for the hearing is to talk about
what might happen. Again, none of us know for sure and that is
why I think the public deserves and we are having this hearing
today to hear various potential outcomes.
With that I would like to yield to Ranking Member Hahn for
her opening questions.
Ms. HAHN. Thank you. Again, this is an important hearing so
that we can really analyze what some of the impacts are of the
Affordable Care Act.
I will say I have been having in my district workshops with
my small businesses specifically on ACA because there is so
much misunderstanding out there. And frankly, I would dare say
there are outright lies being put out there in some of the
media outlets about really what this means. So I have been
holding workshops so that we can walk small businesses through
what this means.
Now, in California, we are ahead of the game because we are
ready for the exchanges. We are on top of it, and we think it
is going to be valuable and beneficial to small businesses. And
let us remember less than 1 percent of small businesses will be
under the mandate of the Affordable Care Act to provide health
insurance. But that does not change those of you who want to
provide health insurance, which I applaud, and then what this
new tax will mean in terms of higher premiums.
What I want to do, Mr. Van de Water, and Mr. Dennis, is
maybe talk about that huge disparity that both of you talked
about in terms of job losses as a result of this--I do not know
if it was the result of ACA or result of just this tax. I want
to hear that.
And by the way, when we are talking about job losses, we
have been told that sequestration will result in 750,000 job
losses. So around here there are some decisions that have been
made that have resulted in job losses. So on top of that I am
real interested to know what the big disparity is on the number
of jobs you think will be lost as a result of this.
Mr. Van de Water, you kind of said you would be willing to
explain it.
Mr. VAN DE WATER. Sure.
As I indicated, the Congressional Budget Office has taken a
look at the overall effect of the Affordable Care Act and has
concluded that the effect on employment overall would be
negligible. And in fact, to the extent that there is any effect
at all it will result from the fact that some people who are in
effect hanging on to jobs in their older years simply to hang
on to health insurance coverage would be able to retire
earlier, spend more time with their grandchildren, whatever,
because they would have alternative sources of health coverage
available that were not tied to their employment.
Now, with regard to the NFIB study, the model that they use
is very complicated and I cannot say that I can follow all of
the moving parts, but I have a couple of suspicions of what is
going on here.
First of all, although Mr. Dennis talks about the proceeds
of the tax being reinvested, it is not entirely clear to me
that the model is taking into account or the assumptions that
were input into the model are taking into account all of the
spending that results from the tax because of the extent that
there is money that is being collected through the tax but
being spent yet get ignored in the model. You could end up with
job loss because of that.
I am also concerned about what the model may be assuming
with respect to the effect of premiums on wages. Again, as an
economist I would believe that to the extent that people get
health insurance coverage, that is part of their compensation
package. It is compensation just like wages. And to the extent
that employers are paying more compensation in the form of
health insurance over the not too many years that people end up
with less cast compensation. So to the extent that compensation
is unaffected by the cost of health insurance as I think it
would be, it is very hard for me to see why this particular
model should produce anything in the way of job loss.
Ms. HAHN. Thank you.
It is an interesting angle to talk about the people who
really only have jobs for the health insurance as being one
angle. I had one friend who got married to the wrong person
just so she could have health insurance. We will also have a
lot of less bad marriages as a result of this.
Mr. Dennis, explain----
Mr. DENNIS. We did not model the bad marriages. I am sorry.
The first thing on the spending item. Yes, it all is
required by the way the thing is constructed that you have to
put it all back in. You have to put it back in in the
industries in which it is presumed it will go into. So we
assumed that this would be spent for the most part on the
health care with a little bit on insurance I believe was the
way we put it together. So that answer is yeah, there is all
spending.
The second thing is the idea of passers of these things in
terms of lower compensation. And so in effect we get a net wash
on that. And there is some truth in that. Again, I cannot do
all the technical equations and all that sort of thing they got
in there either, but I think there is an allowance for that.
And some of it goes through and some of it does not.
Ms. HAHN. Thank you.
Chairman COLLINS. Thank you.
At this point, I yield to Representative Huelskamp for five
minutes.
Mr. HUELSKAMP. Thank you, Mr. Chairman.
I did not know we would get to questions before we went to
vote but I appreciate the opportunity.
Gentlemen, thank you for being here. I appreciate the
opportunity to visit with you.
First, I want to read a constituent's e-mail I have
received and ask you a few questions about that.
``Dear Tim or Dear Congressman, I appreciate all your
efforts against the Health Care Plan and now more so than ever.
I want to tell you my story in case any personal stories will
help you in your fight against that horrible law.''
And this is from Kathy.
``I was recently notified by my insurance company that they
will be closing their doors, going out of business, on December
31st of this year due to the ObamaCare sledge hammer that will
be coming down on everyone as of January 1, 2014. Not only am I
losing my and my children's insurance coverage, I am losing
people who have become my friends.'' And then she describes
this insurance company was with the family throughout a loss of
her husband through cancer, and this is not just one letter we
received; this is something I received from many folks.
She was happy with her health insurance coverage and she
has lost that. We talk about the facts and figures that are in
here. One thing you cannot change are these stories of folks
that like their health care plan. The Congressional Budget
Office estimates that 7 million Americans will lose their
employer-based health care coverage. Apparently, even if they
liked it they do not get to keep it. Seven million. And that is
the impact of what happens here.
One thing I want to ask a question is this $100 billion tax
increase which I am cited onto the bill to do away with that, I
think the doctor here is supportive of that. I would guess the
other three are not, but Doctor, the question I have, the $116
billion tax increase, you support that. Do you think that was
not high enough or just about right? Because you are under the
impression that this tax increase is good for the economy, good
for the health care sector. I want you to describe the reasons
for your support of that and what it means for Americans.
Mr. VAN DE WATER. The importance of the Health Insurance
Tax is as one of the ways of paying for the expansion of
coverage in health reform. I personally think that it is a very
important benefit. It is a very exciting development that all
Americans going forward will have access to health insurance
coverage regardless of their health status, regardless of their
employment status. I, for one, think that I want my children to
have access to health insurance. I suspect that all of us want
our children and friends to have access to health insurance,
and I think the Affordable Care Act will do that. And that is
why we have this tax along with the others in health reform,
not because we like any one tax in particular. No one likes
taxes per se. We raise taxes to raise revenues to pay for
things that we want to pay for, and in this case we are paying
for an expansion of health insurance coverage to 27 million
Americans. Would there be alternative ways of raising that
revenue? Of course there would. And if the Congress can come up
with an alternative, so be it.
Mr. HUELSKAMP. But what do I tell Kathy who lost the plan
she liked, Doctor? It was taken away from her. She had a decade
long relationship with this company and it has worked well for
her, and you have come in here with this law--not you--the
Congress and the president--and said, ``Sorry, that is no
longer a choice you have any more.'' And she is very upset
about it. What do I tell her?
Mr. VAN DE WATER. Well, there is no evidence that what has
happened to this company is as a result of this particular tax.
Mr. HUELSKAMP. The law is the impact that caused this. I
mean, you can argue with Kathy and argue with her experience
with her insurance company, but the impact of this law is the
company she liked, as well as 7 million other Americans have
health insurance and they are going to lose that and have to go
into a plan they do not like. I mean, what am I supposed to
tell those folks? Just say, ``Hey, it is a great thing. Enjoy
paying the tax but you do not get to keep the health insurance
as promised.''
Mr. VAN DE WATER. I think the health reform law has become
a convenient excuse for people to use. We do not know that this
company is going out of business because of the health reform
law. Companies of small businesses we know----
Mr. HUELSKAMP. Well, I am not going to argue with Kathy who
lost her health insurance coverage in making this claim, her
insurance. She was happy with it. This company is going out of
business. Again, what is the statement to that?
Mr. VAN DE WATER. Not necessarily because of health reform.
We do not know that.
Mr. HUELSKAMP. Well, one thing you do not know, Doctor, is
the fact that I will note here you used data from 2009 to make
your claims. CBO has updated much of this data in here. The 7
million--do you not agree with the CBO that 7 million Americans
are going to lose their employer-based health care coverage? Do
you disagree with that?
Mr. VAN DE WATER. Some people will cease to have----
Mr. HUELSKAMP. Do you disagree with up to 7 million
Americans? This is coming out of the CBO.
Mr. VAN DE WATER. I do not remember offhand if that is the
right number.
Mr. HUELSKAMP. Well, you might look up the latest reports
because one point in here--and I am sorry, Mr. Chairman, but
when you come here and you use something from 2009 and say this
is--the year before this passed, 2009----
Mr. VAN DE WATER. Which particular citation are you
concerned about, sir?
Mr. HUELSKAMP. Well, you have the citation, sir. It is in
your report. And you talk about the impact of the----
Mr. VAN DE WATER. The citation is still accurate.
Mr. HUELSKAMP.--impact of this health insurance----
Mr. VAN DE WATER. Nothing I have said is based on CBO 2009
has changed in CBO's view that I know of.
Mr. HUELSKAMP. I will be happy to share that with you, sir.
The CBO has changed. They now estimate that the cost has
doubled. That is the estimate of CBO. And the 7 million lost--7
million figure is not new. I mean, this was a few months out
here.
So I just say there is some information out there. I would
appreciate if you would share the most up-to-date information
in the CBO.
Mr. VAN DE WATER. The 27 million figure I used is the most
recent number.
Mr. HUELSKAMP. Well, how many will still be uninsured when
this is fully implemented? About the same percentage that were
uninsured before we started this.
I yield back my time.
Mr. VAN DE WATER. Absolutely not.
Chairman COLLINS. Thank you, Mr. Huelskamp.
Voting has been called but we do have a few more minutes.
So in the interest of maybe cutting it a little close, I would
like to yield to Mr. Schneider for his questions.
Mr. SCHNEIDER. And I will be brief.
I spent the bulk of my career working with small
businesses. I owned businesses from 1997 to 2003. I owned a
small insurance agency, and I know from my experience both
personally and many of my clients, the bane of looking to the
future is uncertainty. As you talked about the uncertainty, it
makes it very difficult.
But I also know from my experience and the experience of my
clients that we were seeing double digit increases in health
insurance premiums going back, and as we were making choices
that was one, in my own case with my partner, that was one of
our greatest uncertainties every year is what was going to be
the insurance in health insurance. And for a small business we
had our peak 10 employees. That was a very difficult challenge.
So as you look at uncertainty as we go forward, what do you
see? We need to get through to the other side of the complexity
of health care but to provide a greater certainty once we get
there, once people know what they are doing, do you think
people will start hiring again? Do you think we will start
moving in the right direction again? What is the impact long
term that concerns you?
Mr. DENNIS. Well, are you talking about uncertainty in the
abstract or with regard to the particular thing we are talking
about here, health care?
Mr. SCHNEIDER. Well, certainly, the abstract makes it
harder for businesses to plan in general, but specifically with
health care, once we get it set they will know what they have
to do.
Mr. DENNIS. Well, clearly, uncertainty has been a major--
what can I call it? Drawback or dampening. Had a dampening
effect on small business employment. It probably also has had a
dampening effect on entry, too, although we cannot prove that
nearly as much.
Longer term one has to assume that if you reduce that
uncertainty, and it will take a lot to do that, that indeed
employment will be much more likely to stabilize in the sector.
Small businesses still struggling and a good bit of it is that
rather than hiring in anticipation, you know, expecting certain
positive things to happen and therefore I am going to hire, it
is almost the reverse happening. You have to force them to
hire. In other words, things have to be so tight that that is
the only way you are going to hire. And that is the feedback we
have been getting for a long time now and it seems to continue.
All survey stuff would also show that uncertainty is a huge
factor.
Mr. SCHNEIDER. Do you get a sense--and I will close with
this question--do you get any sense in your surveys that small
business employers with access to exchanges, with access to a
more stable market, will feel that they have the opportunity to
hire more people down the road?
Mr. DENNIS. We do not have any survey data on that one way
or another. We hope to begin to start collecting some of it
soon. And to be able to give you a better answer on that. Let
me put it that way.
Mr. SCHNEIDER. I yield my time.
Chairman COLLINS. Thank you. In the interest of continuing
to cut it close, I yield to Mr. Luetkemeyer for his questions.
Mr. LUETKEMEYER. Thank you, Mr. Chairman.
With regards to the exchanges, Mr. Dennis, the president
has already waived off the competitive part of that for another
year or two; is that not correct?
Mr. DENNIS. Yes.
Mr. LUETKEMEYER. Can you explain a little about that?
Mr. DENNIS. You mean that there will only be one plan?
Mr. LUETKEMEYER. Right. Right.
Mr. DENNIS. There will be one rather than three.
Mr. LUETKEMEYER. So as a result of that where is the
competition that is supposed to be driving down price?
Mr. DENNIS. Well, you would not necessarily have to get
your insurance through the exchange. I mean, you could, but you
do not necessarily have to. So presumably there will be other
plans.
Mr. LUETKEMEYER. What kind of effect is that going to have
on the small business folks trying to find insurance?
Mr. DENNIS. Well, it will be, I mean, they will have fewer
opportunities than they would have in the past.
Mr. LUETKEMEYER. What does that usually mean you have fewer
opportunities?
Mr. DENNIS. More expense and----
Mr. LUETKEMEYER. More expense.
Mr. DENNIS.--less quality. Let me put it that way.
Mr. LUETKEMEYER. One of the things that I have talked with
my small business folks at home is that whenever they are
looking in the 40 to 150 range about how--with employees, how
they are going to be able to afford this, they are looking to
going to part time with some of these, going temps with some of
these, even dividing their companies in two, two have two
separate companies to try to slip underneath this. When these
people go down to 28 hours or 30 hours or whatever it is, those
people are going to find insurance on their own; is that not
correct?
Mr. DENNIS. Yeah.
Mr. LUETKEMEYER. Okay. If you are a young person that is
being laid off and you are healthy, Mr. Thorn, what is your
experience with young people who have to make a choice between
paying rent, making a house payment, making car payments,
paying the rest of their insurance, and now they have to figure
out how they are going to afford health insurance on a reduced
budget; what is your experience with that?
Mr. THORN. Or go on a date.
Mr. LUETKEMEYER. Or go on a date.
Mr. THORN. And the young, healthy immortals we call them--
--
Mr. LUETKEMEYER. Maybe they will get married like Ms.
Hahn's friend.
Mr. THORN. Let us hook them up. There you go.
No, I think that is a very real concern. In our state of
Utah we have had updates 26 for a long time, for a number of
years. So part of the ACA, I think that is a good thing. I look
at a lot of these young kids who are going to school. The last
thing in the world they can afford is health insurance. To be
able to stay on their mom and dad, that is a good thing. But
for those young folks who----
Mr. LUETKEMEYER. Let us take a single parent with a child
or two. You are 30, 30-some years old. You have got, you know,
you are a wage earner. You can pick out whatever occupation you
want to but you are a wage earner and so now you are a
receptionist at your insurance agency, for instance, and
suddenly you get your hours cut back and you have got two
employees, let us say. And now you cut them both back to 28.
You have part-time employees you do not have to supply their
insurance for them.
What happens--what is the economic effect when people have
less money to spend, Mr. Dennis?
Mr. DENNIS. Well, I mean, if you have less money to spend--
--
Mr. LUETKEMEYER. You do not purchase things; right?
Mr. DENNIS. Well, yeah. And you are going to prioritize
them. Let us put it that way.
Mr. LUETKEMEYER. Okay. If you have less money--and if the
insurance is taking more money out of your pocket and you have
less money to spend, that is less money to spend on the rest of
the economy; is it not?
Mr. DENNIS. Well, someone has got it somewhere. I mean----
Mr. LUETKEMEYER. Well, the insurance companies are going to
take it out and send it to the government. So the government
has got it; right?
Mr. DENNIS. Exactly.
Mr. LUETKEMEYER. Okay. So where is the economic benefit of
this? Is it going to be a plus or a minus?
Mr. DENNIS. I am getting a little lost on some of this, I
am sorry, sir.
Mr. LUETKEMEYER. My basic, where I am headed with this is
the insurance costs are sucking more money out of the economy.
Mr. DENNIS. Right.
Mr. LUETKEMEYER. There is less money for the individuals
and businesses to spend.
Mr. DENNIS. Right.
Mr. LUETKEMEYER. And therefore, there is going to be less
money spent in the economy. So the effect would be----
Mr. DENNIS. No, there will not be any less money spent. It
will be who is spending it and what is it being spent on?
Mr. LUETKEMEYER. Okay. Who can best spend a dollar--the
government or private sector? Who can get a better return on
it?
Mr. DENNIS. I am very much biased towards the private
sector.
Mr. LUETKEMEYER. Thank you for your honesty, Mr. Dennis.
I think that in the interest of time here I will stop there
because we need to go vote, but again, I thank you each for
being here today. I appreciate your willingness to spend some
time with us and give us some real world examples of some of
the effects of this tax on small business. Thank you.
Chairman COLLINS. In the interest of getting out to vote we
will adjourn this briefly until we are back. It could be 30 to
45 minutes. There are a few more questions and I think to get
those on the record we will reconvene after voting. I thank you
for your understanding and we will be back as soon as we vote.
This meeting is temporarily adjourned.
[Recess]
Chairman COLLINS. I call the hearing back to order. And in
the interest of time, I will certainly defer to Ranking Member
Hahn for a couple of questions so she might catch her flight.
Ms. HAHN. Thank you, Mr. Chairman.
Mr. Van de Water, the ACA included provisions including
rate review panels and the medical loss ratio requirements,
both intended to protect consumers. Can you please explain the
interaction between the Health Insurance Tax and consumer
protection provisions like these?
Mr. VAN DE WATER. Yes, thank you, Ms. Hahn.
As discussed before, the medical loss ratio provision is
designed to make sure that consumers basically get good value
for their insurance premium dollars and this other requirement
is dependent upon the details of the policy that either 80 or
85 percent of the premium be paid out ultimately in benefits.
Now, my recollection is that this particular tax that we
are discussing today, the Health Insurance Tax, is included for
purposes of meeting the medical loss ratio so that to the
extent that that is passed forward that the consumers still
have to pay--can be forced to pay some of the Health Insurance
Tax. That is that the medical loss ratio provision does not
protect them from having part of this tax passed forward, but
it will provide a lot of help to consumers generally. In fact,
there are a lot of consumers who already receive rebates on
account of the medical loss ratio provisions so that even
though it does not protect them from the Health Insurance Tax
in particular, it is a good protection generally speaking.
Ms. HAHN. Thank you. Yeah, we actually had a witness here I
think last month that actually talked about already having
received $1,500 in a rebate check that she was saying really
was helping to keep afloat her expenses at that time. So she
was very happy to get that.
Mr. VAN DE WATER. And, of course, there a lot of other
provisions of health reform, which will be affecting premiums
as well. During our intermission, Mr. Thorn and I were having a
good chat and we were agreeing that in the long run the most
important thing that needs to be done is to control the rate of
growth of health care costs, and that is not something that is
peculiar just to public programs like Medicare or Medicaid, but
it applies obviously to private insurance, self-insured
employers, small businesses that purchase commercial products,
individuals, and of course, the ACA takes a number of steps
that we hope are going to help slow the growth of health care
costs in the long run, although we also know it is just the
beginning and then more is going to have to be done.
Ms. HAHN. So one of the things we have not talked about is
the premium tax credits that ACA has included, which will
provide assistance in buying health coverage. And these
subsidies can actually lower health insurance costs for many
people, and despite insurance companies recouping the Health
Insurance Tax through higher premiums. Do you think it is
possible that these premium credits will help keep premiums
affordable for most people?
Mr. VAN DE WATER. Well, for those companies, employees of
those companies that can take advantage of them, yes. In my
prepared statement I mentioned the CBO estimate that for
employees of that sort and in terms that can take advantage of
the credit, that the net reduction in premiums might be on the
order--due to the affordable Care Act, overall might be on the
order of 8 to 9 percent. Now, I think we all know, and I am
sure your Committee is very well aware, that if cost
considerations, the reach of those small employer credits is
somewhat limited. They apply only to very small firms and to
those with quite low wage levels. But for the firms that can
take advantage of them they will be a big plus.
Chairman COLLINS. I just have a few questions to finish up.
I, again, thought we were only talking about the Medical Device
Tax, but in fairness to all here I do subscribe to the Max
Baucus definition of ObamaCare, calling it a ``train wreck.''
We will not know until January 1, 2014, but I am of the
opinion, frankly, $100 billion here and $100 billion there and
$40 billion here and $40 billion there actually is real money,
even for the federal government. So $100 billion, the Health
Insurance Tax. Another $100 billion on employer mandates.
Another $40 billion. And we had testimony just a few weeks ago
from Dr. Aiken who was saying if a small startup Medical Device
Company is not profitable and they do not make 2.3 percent of
profit based on revenue they go out of business. All those jobs
are lost.
Stryker. A $100 million tax on medical device alone already
has laid off 1,000 workers, cutting back on R&D. They are a
public company. They need to protect their stock price and they
cannot absorb or pass on a $100 million charge. So again, I
would say with some bias I agree with Max Baucus. It is a train
wreck.
But a couple of questions maybe to finish up. Mr. Dennis,
the NFIB is known for advocacy for small business. In fact, I
am a member of the NFIB, in all fairness. Do you think--I think
I know the answer--that the annual fee threatens small business
expansion and job creation? Just interested in your opinion on
that.
Mr. DENNIS. Yeah. Surely. Whenever you get something like
this, it is always something that you have to pay. And the more
that you have to do, the less you are able to put in an
investment somewhere else. I mean, it is a matter of choices.
You either pay what you have to pay or do not, or you invest or
do not. That is pretty simple and the question is just how
much.
Chairman COLLINS. Thank you.
One other question for Mr. Dennis, and something that I am
very concerned about. I believe in competition. I think
competition works. I do not think the government should pick
winners and losers, and I do not think the federal government
should put small businesses at a disadvantage, whether it is
currently today a higher tax rate, marginal tax rate for pass-
through entities, than we have for big corporations. 39.6
percent for small business, 35 percent for big corporations.
The first time I know of in history that small businesses are
taxed at a higher rate. But I am more concerned about the fact
that a lot of big corporations--most--are self-insured.
So my worry is on the competitive impact. A lot of small
businesses, certainly they compete product line by product line
with big corporations. They see a niche and they want to step
in, but since big corporations are not subject to this tax if
they are self-insured--so you could argue, and I think Dr. Van
de Water even said--it may not have a lot of impact on some of
these big corporations but this tax is placed on those group
plans that small businesses subscribe to. So now this Health
Insurance Tax, there is unanimous agreement, will be passed on
in the form of higher premiums. It seems to me it is just one
more competitive cost disadvantage that the government is
deliberately passing on to small business which will have a
chilling effect on competitiveness. So again, that is a
statement, and I just would like your comments, Mr. Dennis.
Mr. DENNIS. Well, no. I mean, I think that is one of the--
if you look at the tax per se and forget the size of the tax
and all this stuff, one of the most egregious things about this
particular form of tax is that it is highly discriminatory. I
cannot imagine being in similar context in this one because it
is so egregious. And as a corollary, of course, it is a hidden
tax. It is a nontransparent tax. And then thirdly, if you want
to add that, it is a cascading tax. And that is it becomes a
tax on a tax because it is rolled into the premiums.
So in terms of just tax policy, I cannot think of a tax
that is probably much worse than this. If you give me some time
I might be able to, but this kind of does a pretty good job of
violating a lot of important principles.
Chairman COLLINS. I think a prior witness would say that
the Medical Device Tax is right up there with it.
Mr. Thorn, now this is a little bit technical but, you
know, in peeling back the numbers I would like to ask you, as I
understand it this is an excise tax, so it is not tax
deductible. If the insurance company has to provide call it a
$1 fee to the government as an excise tax, that comes off of
the bottom line of for-profit insurance companies. In order to
get there it is not that they are going to be passing on a
dollar; they have to pass on $1.50. So they are going to have
to actually pass on to the consumers and small businesses a
$1.50 increase in order to have a dollar left because the
increase in the premiums is a taxable event. They are going to
pay 50 cents in tax to the federal government, which is money
going out. That then leaves them with a dollar. Then they send
that dollar to the federal government as an after-tax excise
tax.
As an insurance broker I would ask, am I reading this
correctly that a one dollar increase--one dollar health
insurance tax equals potentially, certainly for the for-profit
insurance companies, $1.50 being passed on, so it is even
worse. I just would ask your comment on that.
Mr. THORN. Well, Mr. Chairman, you are absolutely right.
The bigger issue, too, is the fact that you are going to see a
lot of insurance companies who are creating or devising self-
insured policies down to 5 to 10 lives, which is also a
potential train wreck in and of itself to avoid this very tax.
And I am hearing stories of that happening. So do we really
want to go down that road as well? I think there are so many
problems with this tax itself and it is disproportionately
being affected by the small employer groups. If you are going
to spread the tax it should be amongst everyone, not just a
certain population.
Chairman COLLINS. That is a concern I have.
My last questions are for Mr. Norton. The Farm Bureau has a
lot of issues. Just next week we are marking up the five-year
Farm Bill that was deferred. It should have been done last
Congress but that is another comment. You have a lot of
issues--dairy issues, insurance issues, and so forth--and yet
you are here today saying that one of the top issues for the
Farm Bureau is, in fact, repealing the Health Insurance Tax.
And I just would like your comment on how it is you have
prioritized this given so many other issues.
Mr. NORTON. Well, as you mentioned, we have a lot of
issues, but this is front and center one of them because
honestly, without some of the employees that we have to help us
on our family farms and our family businesses, we would not be
in business, and it is imperative for us to be able to take
care of them and provide them health insurance. So the HIT tax
as it is very well named, is going to affect us whether we are
able to have employees, whether we are able to provide the
health insurance that we want to to them, and whether some of
our members might actually take the drastic decision to either
get out of farming all together because of it or change their
model. So our members felt very strongly about the Affordable
Care Act. We have been opposed to its mandates from the
beginning and this is one of the issues that we are here to
work on.
Chairman COLLINS. And I am sure you deal with the other
farm presidents around the country. Certainly, New York is New
York, but could I get your comments on whether your
counterparts across the United States share this same view?
Mr. THORN. Well, I am one of 51, including Puerto Rico. And
as you well know, we get together every year and have a meeting
of delegates to decide our policy. And this was one of those
issues that we discussed and decided in January and we all
agreed that it is important that we take care of this issue and
that we speak up about the cost that this mandate is having on
us and what it is doing to our farms and possibly driving us
off of our farms.
Chairman COLLINS. And certainly, the Farm Bureau is a
nonpartisan, bipartisan group.
Mr. THORN. Yes. Nonpartisan, bipartisan. We work with both
sides of the aisle. Just last week I was having a conversation
with Senator Schumer on immigration reform, and I am very well
aware that you and Senator Schumer are not on the same side of
the aisle.
Chairman COLLINS. Do you think?
Anyway, I want to thank the witnesses, and Ms. Hahn, I do
not know if you have a couple of follow-up questions.
Ms. HAHN. Not so much follow-up but I just feel like I need
to go on the record to say it is the insurance companies who,
by the way, the last time I checked, were making huge profits.
CEOs of insurance companies are making millions of dollars, and
once again, we are letting the insurance companies run health
care. I mean, that is why we have the Affordable Care Act
because insurance companies in this country, instead of the
doctors, were telling people what kind of procedures they could
have. One of the reasons I ran for Congress was because one of
my best friends died of breast cancer about 20 years ago
because at that time bone marrow transplants were considered
experimental and her HPO did not allow for a bone marrow
transplant. And I thought you know what? I am going to run for
Congress because I want to make sure that people do not go
broke in this country because they have to decide between
health care for their families or paying the bills. And the
last time I checked, these medical device folks were also
making huge profits. And by the way, this ACA is probably going
to probably allow for more of these medical devices to be
approved because of this insurance mandate.
And with all due respect to the member who had his
constituent Kathy--and I am sorry for Kathy that she lost her
insurance--what insurance company is closing their doors when
we are mandating in this country that everybody buys insurance.
They must have a pretty bad business model. There is hardly any
other product that we are mandating that people buy. Why an
insurance company would close their doors when more people in
this country are going to have to buy insurance, I do not know.
I just feel like I need to go on the record to say once
again we should be angry at insurance companies, not at this
law. They are once again trying to hold people hostage and I
just read where a CEO of one of these medical device companies
was making $25 million as a bonus at the end of the year. So I
am not feeling too bad for insurance companies right now or
medical device companies. I do want to listen to our small
businesses, and I am going to continue to listen. If there are
places in this law that we need to tweak and we need to make
better, I will. But let us direct our anger where it is
appropriate, and that is with these big insurance companies who
are still raking in a huge amount of profits and millions of
dollars and leaving people like Kathy to fend for themselves.
Thank you very much.
I yield back no time.
Chairman COLLINS. Thank you.
We all know we can agree to disagree, and in many cases we
do, but in answer to a couple of things, I have a medical
device company in my district, Curbell, and they happen to make
that device that makes the bed go up and down and turns the
television on and off and calls the nurse. Now, that is a
medical device. And the medical device tax will impact their
profits in a draconian way--2.3 percent of revenue. And as Dr.
Aiken said a couple of weeks ago, a very successful company
makes 5 percent of revenue on the bottom line. That is how a
business works. A 2.3 percent tax is taking away half their
profits. And as we know, a lot of startup medical device
companies, that is where they come from. They do not make any
money or they make a very small amount. So there are examples
of very successful medical device companies that make 10
percent of revenue on profit. But 2.3 percent is still wiping
out 25 percent of their profit.
Stock prices are based on a multiple of your profit. That
means the Strykers and the Greatbatches and the other companies
are either going to have to see their stock price plummet by 25
percent or they are going to have the cuts. We are already
seeing the cuts, we are already seeing the layoffs, and wishing
it so does not make it so. The idea that we have a mandate
here, and what is a mandate? You must do something. Well, that
is not what the ACA is because for $95 an individual can beg
off. And for $2,000, a company subject to the ACA can simply
deny coverage. The young and the healthy, if they do not
subsidize the sick and the old, I think there is everyone that
understands it is the young and the healthy paying into a
system that subsidizes the old and the frail, all of a sudden
the penalties for the young and the healthy not having
insurance are gone. Because when you think about it, $95 is
their penalty? $2,000 from the employer? There is no longer a
penalty for preexisting conditions. So there were folks who got
insurance because they were afraid if they came down with a
condition they could lose their house, they could lose this or
that. There is no longer a penalty for preexisting conditions.
There is a $95 cost to get out, and if the insurance is $1,500,
I am afraid--only time will tell, and Mr. Thorn hopes this will
not be the case--you are going to see the young and the healthy
dropping insurance like there is no tomorrow because there is
no ROI (return on investment), so to speak.
I have met with the American Health Insurance Providers
organization. They are already seeing the young and the healthy
drop their insurance because the cost is very low, the risk is
no longer there. I can tell you if I buy a new car, I get
collision insurance in case I wreck the car. Now, if you told
me after I wreck the car I can sign up for insurance, I am not
going to get the insurance until I wreck my car and I will not
be buying collision insurance on my new vehicle, and there is a
big correlation with that in the ACA. We will be seeing how
this plays out, but it is not as easy to use the example of
insurance companies making millions. I can assure you in
western New York that is absolutely not the case, and I can
absolutely tell you our CEOs do not make $25 million. But
again, we will set that aside.
I want to thank the witnesses for coming here today. This
is certainly a controversial topic. We are going to see how
this plays out. This is just one more step in getting four
great witnesses to give us input. Some of it we agree on, some
of it we will have to see how it plays out. The Subcommittee
will continue to monitor the implementation of this health care
law and the impact on small businesses. I am sure we will have
some other hearings. And following this hearing, I do plan to
send a comment letter to the Department of the Treasury on the
proposed rule. They are in charge of implementing the fee.
With that, I ask unanimous consent that members have five
legislative days to submit statements and supporting materials
for the record. So without objection, so ordered.
This hearing is now adjourned. Thank you.
[Whereupon, at 12:15 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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Good morning Mr. Chairman, Representative Hahn, and other
members of the subcommittee. My name is William Dennis. I am a
Senior Research Fellow with the NFIB Research Foundation.
Behind me is my colleague Michael Chow, a Senior Policy Analyst
also with the Foundation who produced the simulation on which
this testimony is based. Thank you for inviting us to discuss
our recent research examining the economic effects of the
health insurance premium tax contained in the Patient
Protection and Affordable Care Act (PPACA) on the small
business sector and the broader U.S. economy.
I ask that my testimony be submitted for the record along
the results of our mid-March simulation.
The health insurance premium tax was one of the largest
revenue components included in the original law to offset the
budgetary costs posed by PPACA. Formally structured as a fee on
health insurers, this tax was intended to raise more than $100
billion over a decade beginning in 2014. However, both
government and independent analysts believe that the tax will
be passed on to consumers in the form of higher health
insurance premiums.
The Congressional Budget Office (CBO) explicitly asserted
that this tax/fee/surcharge ``would be largely passed through
to consumers in the form of higher premiums for private
coverage.''\1\ A March 2011 report by former Congressional
Budget Office Director Douglas Holtz-Eakin concurred in that
view \2\ as did the Joint Committee on Taxation (JCT) in a
letter to Senator Jon Kyl dated June 3, 2011.\3\
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\1\ An Analysis of Health Insurance Premiums Under the Patient
Protection and Affordable Care Act, Congressional Budget Office,
November 30, 2009, pp. 15-16.
\2\ Holtz-Eakin, Douglas, ``Higher Costs and the Affordable Care
Act: The Case of the Premium Tax,'' American Action Forum, March 9,
2011.
\3\ Barthold, Thomas A., letter to Senator Jon Kyl, Joint Committee
on Taxation, Washington, DC, June 3, 2011.
The tax has a number of oddities and one of them raises a
major equity and competitive issue for smaller firms. The tax
falls almost exclusively on small businesses. Their larger
competitors have no equivalent obligation. Small-businesses,
therefore, are asked to absorb a significant share of the
financial load of the program while placing them in a less
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competitive position to do so.
The reason for these problems is that the tax is a premiums
tax which targets the fully-insured market. The full-insured
market is the small-business (and individual) market. Small
businesses rarely have the economic resources to self-insure,
which would allow them to escape the tax like large firms do.
The Department of Health and Human Services' (HHS) Medical
Expenditure Panel Survey (MEPS) reports that among private
sector establishments who offer health insurance 87 percent of
those with fewer than 100 employees do not self-insure while
nearly 75 percent of those with between 100 and 499 employees
do not.\4\ The remainder purchase fully insured plans. For
these small businesses who participate in the fully-insured
market, the costs of higher premiums will be borne jointly by
both the employer and the employee in proportion to their share
of premium.
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\4\ Medical Expenditure Survey, Agency for Healthcare Research and
Quality, U.S. Department of Health and Human Services, Table 1.A.2.a
(2010), http://meps.ahrq.gov/mepsweb/data--stats/
summ--tables/insr/national/series--1/2010/
tia2a.pdf.
To quantify the economic effects the health insurance tax
would have on small businesses and the broader economy, the
NFIB Research Foundation employed the Business Size Insight
Module (BSIM), a dynamic economic forecasting tool produced by
Regional Economic Models, Inc., or REMI.\5\ The REMI model is
the leading forecasting and policy analysis model in use and is
employed by hundreds of governmental agencies, universities,
consulting firms, nonprofits, and other entities. In the past
year, for example, the Senate employed the REMI model to
estimate the economic impact that S.2237, the Small Business
Jobs and Tax Relief Act, might have on the economy.\6\
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\5\ The model does not allow us to assess the competitive impacts
of the tax.
\6\ Treyz, Federick, ``Estimated Economic Impacts of the `Small
Business Jobs and Tax Relief Act' '', Regional Economic Models, Inc.,
June 2012.
The modeling process is reasonably straight-forward in the
sense of employing publicly available data as inputs for the
calculations. However, since the tax is fixed (through 2018),
one must estimate the number of people who will be insured by
small businesses in order to obtain the cost of the tax per
insured. We relied on experts for that number. The JCT
estimated the premium increase at between 2.0 and 2.5
percent;\7\ Holtz-Eakin estimated it at 3.0 percent.\8\ We
arbitrarily selected 2.5 and 3.0 percent, and simulated both.
---------------------------------------------------------------------------
\7\ Joint Economic Committee, op. cit.
\8\ Holtz-Eakin, op. cit.
After accounting for a range of potential healthcare
inflation rates in future years, the REMI model predicted a
reduction in national private sector employment of 146,000 to
262,000 jobs in 2022. For perspective, that is the equivalent
of wiping out all current payroll employment in Binghamton,
Ithaca, and Elmira, New York, or Santa Barbara and El Centro,
California or Sioux City and Cedar Rapids, Iowa.\9\ Fifty-nine
percent of the job losses are forecast to be in the small
business sector, a reflection of the health insurance tax's
incidence on the sector. In addition, the cumulative reduction
in real output over the ten-year forecast window is projected
to be as high as $185 billion. Earlier reports \10\ discussing
initial findings along with the detailed methodology we
employed are available on the NFIB website.\11\
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\9\ U.S. Bureau of Labor Statistics, U.S. Department of Labor,
http://www.bls.gov/news.release/metro.t03.htm.
\10\ Chow, Michael J., ``Effects of the PPACA Health Insurance
Premium Tax on Small Businesses and Their Employees: An Update,'' NFIB
Research Foundation, March 19, 2013.
\11\ http://www.nfib.com/research-foundation/studies/hit-cost.
In conclusion, we hope the research foundation's analysis
has been helpful to you in understanding the substantial costs
this health insurance fee stands to pose to small businesses
and the debilitating effects it will have on the sector's
ability to create jobs and put our nation back to work. Thank
you again for the invitation to address your subcommittee
today. We look forward to any questions you may have.
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The New York Farm Bureau commends the Subcommittee on
Health and Technology of the House Committee on Small Business
for holding this hearing on the impact of the Health Insurance
Tax (HIT) on farms and small businesses. I'd like to thank
Chairman Graves and Ranking Member Velazquez, and also thank
Subcommittee Chairman Collins, who is my own Representative. I
appreciate you inviting me to testify today.
My name is Dean Norton. I am president of New York Farm
Bureau, which represents 25,000 members, and I also serve on
the Board of Directors of the American Farm Bureau Foundation,
representing the Northeast. My family owns and operates Oak
Orchard dairy farm in Elba, N.Y., and I am part of the fifth
generation on this land. We also have a custom trucking
operation for forage and commodity harvesting. The dairy
encompasses more than 1,000 acres of farmland and currently has
900 milking cows. In addition, my wife, Melanie, and I also
operate DMCK Cattle Company.
The HIT Tax was passed as part of the Patient Protection
and Affordable Care Act (ACA). It has nothing to do with
reforming the health care insurance system but was included in
the ACA as a way to raise revenue to offset the cost of the
legislation. The HIT Tax, which will be levied on a health
insurance company's net premiums, is expected to raise $102
billion over the first 10 years. During 2014, the first year
that the HIT Tax takes effect, $8 billion will be collected. A
recent Congressional Budget Office report confirms that the HIT
Tax ``would be largely passed through to consumers in the form
of higher premiums for private coverage.''
Most farmers and other small businesses do not self-insure
because they do not have a large enough pool of employees.
Instead, small employers like my family purchase health
insurance on the fully insured market. According to the Kaiser
Family Foundation's 2012 Survey of Employer Health Benefits, 15
percent of the smallest employers self-insure, roughly half of
employers with 200-999 workers self-insure, and 93 percent of
firms with more than 5,000 workers do so. Because the smallest
employers almost never self-insure, we will end up bearing the
brunt of the HIT tax.
But health insurance costs for small businesses are already
rapidly trending higher, increasing 103 percent since 2000.
According to the Joint Committee on Taxation, the HIT tax will
further increase family premiums by $400 or 2.5 percent in the
year 2016, making it even harder for farmers to purchase
coverage for themselves, their families and their employees.
In my family's business, the dairy industry provides a
highly unpredictable income--the price of milk and the price of
our inputs can vary greatly. But health insurance costs have
been increasing steadily over time. Our business has to plan to
pay for health insurance costs no matter how the business is
doing month to month. Because of the cost of insurance we have
had to turn to a high deductible policy and we are now covering
about half the number of employees we once did.
In order to keep up with the expenses of employer-provided
health insurance, it was necessary for the farm to
significantly changed the cost structure from covering about 90
percent of the insurance cost to approximately 50 percent at
this time through the high deductible plan. Unfortunately, the
people who are really hurt by this change are the employees.
They now have to contribute a larger portion of the expense
when they seek medical attention and I think we all know that
this can be a disincentive for workers to seek care in some
instances.
Being able to offer health insurance is important to us we
strive to offer benefits that attract high quality workers and
to keep them healthy and productive once they are on the
payroll. A dependable workforce is especially important in our
dairy business which operates 7 days a week, 365 days a year
and in our trucking business in which harvest seasons are short
and a down day could make the difference between turning a
profit or not.
Escalating health insurance costs not only impact farm
employers, but also those who purchase health insurance
coverage for themselves and their families. The rise in health
care costs in recent years has disproportionately impacts rural
America where, according to the Council of Economic Advisors,
24.2 percent of families spend more than 10 percent of their
income on health insurance coverage, compared with 18.1 percent
of families in urban areas.
In conclusion, I would like to encourage all members of the
House Small Business Committee to become cosponsors of H.R.
763, introduced by Reps. Charles Boustany (R-La.) and Jim
Matheson (D-Utah), to repeal the annual fee on health insurance
providers that was enacted by the ACA. Repealing this
counterproductive tax will certainly prevent premium increases
for individuals and small businesses in the fully insured
health insurance marketplace.
Thank you again for the opportunity to share my story. I
would be glad to take your questions.
Statement of Rep. Charles Boustany (LA-03)
House Small Business Committee
Subcommittee on Health and Technology
``The Health Insurance Fee: Impact on Small Businesses''
Hearing
May 9, 2013
Enabling all Americans to have access to quality and
affordable healthcare was, and remains, a laudable goal.
Unfortunately, actual public policies passed by Congress, too
often come with unintended consequences and unexpected price
tags. The President's health care law is a prime example of
this.
For instance, take small businesses and the health
insurance coverage countless enterprises provide for their
workers and families. Recently, Gallup's national poll reported
that health care costs and taxes served as the two greatest
challenges already facing small businesses. Now, by way of the
President's health care law, millions of American Main Street
enterprises and the even more millions of workers they employ
will be subjected to a new health insurance tax (HIT) at a
price tab over $100 billion. Increased premiums will not only
impact small businesses' bottom lines and family budgets, they
will also lead to negative economic consequences.
Promoted as a ``health insurance fee'' on insurers, the HIT
is unavoidably a tax on small enterprises and the self-
employed. Even the Congressional Budget Office (CBO) noted the
costs will simply be passed on to policyholders. The HIT will
cost each affected family about an average of $5,000 in higher
premiums over the next decade.
American small businesses and workers aren't asking for a
bailout or a handout, they just want a level playing field.
Instead they received a tax increase for an expensive health
care program they did not ask for our could even afford, while
corporate interests and unions were given a pass. It's wrong
and needs to be fixed before it goes into full effect in 2014.
There is hope, however. Congress has the ability to enact
what many call the ``small business fix'' to the President's
health care plan through legislation I introduced named the,
``The Jobs and Premium Protection Act.'' H.R. 763 prevents
premium increases for small businesses and families and
protects employees' jobs by repealing this unfair tax. The bill
is a measured reform ensuring America's small businesses and
workers are not targeted with billions of dollars in new taxes
or forced to join the ranks of the unemployed. The legislation
has overwhelming bipartisan support that continues to grow each
day.
Last year, similar legislation was cosponsored by 226
members of Congress. I am hopeful my colleagues in the House
and the Senate recognize the potentially disastrous economic
effects this tax will have and will join in honoring our
commitments to protect small businesses and the millions of
workers and families depending on them.
As small businesses inch toward 2014, when major provisions
of the Affordable Care Act (ACA) will be implemented, the small
business health insurance tax (HIT) will become an expensive
reality. This tax may make the ability to offer health
insurance coverage even more cost-prohibitive for employers and
the ability to purchase health insurance coverage out of reach
for many self-employed individuals. According to the National
Federation of Independent Business Research Foundation, the
small business health insurance tax may cause up to 249,000
lost jobs and up to $30 billion in lost sales over the next
decade. In this economy, American families and small businesses
should not have to face a forced tax increase. It's bad policy.
Statement for the Record
Hearing on the ``The Health Insurance Fee: Impact on Small Business''
May 9, 2013
Subcommittee on Health and Technology
House Committee on Small Business
Joe Moser
Interim Executive Director
Medicaid Health Plans of America
Chairman Collins, Ranking Member Hahn, and other
distinguished members of the Subcommittee on Health and
Technology of the House Committee on Small Business, I am
submitting this Statement for the Record on behalf of Medicaid
Health Plans of America (MHPA) for the hearing titled, ``The
Health Insurance Fee: Impact on Small Business,'' conducted by
the Subcommittee on May 9, 2013. My comments are regarding the
insurer fee's impact on the Medicaid program.
MHPA is the leading national association solely focused on
representing the interests of Medicaid health plans. MHPA's 117
member plans serve more than 15 million beneficiaries in 34
states and the District of Columbia. As you may know, over half
(51%) of all Medicaid beneficiaries now receive their Medicaid
benefits through full-risk, capitated Medicaid health plans.
MHPA appreciates the Subcommittee's attention to the impact
that the insurer fee, which is contained in Section 9010 of the
Patient Protection and Affordable Care Act (PPACA), Public Law
111-148, will have on consumers and small businesses. This tax
would result in higher health insurance premiums in the
commercial market and will be burdensome for small businesses
that do not self-insure, as was discussed during the hearing.
However, states' Medicaid programs and Medicaid
beneficiaries will also be heavily impacted by the insurer fee.
The insurer fee applies to most health insurance companies in
the market and this includes nearly all of MHPA's membership,
Medicaid health plans that contract with states to serve as the
payment and delivery system for states' Medicaid beneficiaries.
The negative impact of this fee is especially apparent when
analyzing its effect on state Medicaid programs. The Medicaid
program serves our nation's neediest population, including low-
income pregnant women, children and individuals with
disabilities. Each state's Medicaid program is funded by the
federal government and states. Most states contract with
managed care organizations to deliver Medicaid benefits and
services to beneficiaries. The states are required by the
federal government to pay Medicaid health plans actuarially
sound rates to ensure that plans have enough resources to cover
the care needed by enrollees as well as common costs of doing
business, which include taxes and fees. This means that
Medicaid health plans will be paid with state and federal
dollars to cover this fee owed as a result of the PPACA.
Further, this fee is nondeductible and counts as taxable
income, which only exacerbates the cost.
MHPA commissioned Milliman, a leading actuarial firm, to
analyze the impact of the fee on Medicaid health plans and to
quantify the resulting cost to states and the federal
government. The Millman report found that over ten years, the
fee would cost the government $38.4 billion. The state portion
of this estimate is $13.6 billion and $24.8 billion would be
the federal portion.
The loss of state and federal Medicaid funding that would
result from this fee being placed on Medicaid health plans will
strain states and the Medicaid programs, as well as reduce
funding and access to services available for Medicaid
beneficiaries. As states face financial pressure to implement
the PPACA and expand the Medicaid program, the insurer fee will
drain states of valuable and limited health care dollars.
In closing, MHPA supports full repeal of the insurer fee.
We applaud Congressman Boustany's legislation, H.R. 763, to
fully repeal the fee in order to avoid the negative impact that
it will have on state Medicaid programs and beneficiaries, as
well as companion legislation, S. 603, introduced by Senator
Barrasso. We urge Committee members to continue to recognize
the negative impact that this fee will have on the Medicaid
program as one very important component to the overall concerns
regarding this tax contained in the ACA.
Thank you for the opportunity to submit a Statement for the
Record on behalf of MHPA.