The Heritage Foundation
Surprise, Surprise: Yet Another Part of Obamacare Increases Premiums and Kills Jobs
Even without Obamacare, the United States faces rising health care costs and an economy struggling to recover from the recent downturn. Despite its supporters’ promises, the health care law does not solve these problems. A study released today by the National Federation of Independent Business highlights the impact of Obamacare’s new health insurance tax alone on Americans’ health care costs and the health of the economy.
Obamacare institutes a premium tax on health insurers that offer full coverage beginning in 2014. Before it became law, Heritage expert Edmund Haislmaier wrote that such a tax would increase health care costs, increase taxes, create new inequities, be disingenuous, create perverse incentives, distort the market, and expand federal power.
In a recent study by the consulting firm Oliver Wyman showed that this tax will increase insurance premiums by, on average, 1.9 to 2.3 percent in 2014. The impact will grow with time, reaching 2.8 to 3.7 percent by 2023. Like the nominal premium increases occurring due to already-enacted parts of Obamacare, these may sound insignificant on their own. But the cumulative impact—in conjunction with cost increases that would have occurred anyhow—will be much higher premiums for families and individuals: “For small group coverage, this will on average increase the cost to cover an individual by about $2,800, and a family by about $6,800 over a ten-year period, beginning in 2014.”
The NFIB study released today shows the effect that health insurance premium hikes will have on employment and job creation. As NFIB researcher Michael Chow explains, “For a small business owner who does not self-insure, this increase in premiums will be borne by both the employer and the employee, each of whom contributes toward financing the insurance.” The report shows that the new tax will reduce private sector employment in 2021 by anywhere between 125,000 and 249,000 jobs.
Of the jobs losses, 59 percent will come from small firms with fewer than 500 employees, and 25 percent will come from the smallest firms with fewer than 20 employees. The tax will also reduce real gross domestic product by $18–26 billion in 2021.
The main purpose of the health insurance premium tax is to raise federal revenue to pay for the costly parts of Obamacare, including its expansion of Medicaid and creation of new federal subsidies. The tax is projected to collect $90 billion in new revenue through 2020. But, as Haislmaier warns, “This insurance premium tax would create a new, permanent federal tax that could, and likely would, be increased by Congress in future years as the growth in new government spending in the legislation outstrips the growth of revenues to fund that spending.”
The health insurance premium tax isn’t the only provision of the health care law that hurts the economy. All told, Obamacare’s job-killing provisions will tax job creators, reduce investment, and cause the most harm to low-income workers. According to Heritage economists, “The best way to prevent further erosion of the economy is to repeal the new law.”
Alyene Senger contributed to this post.