Tax On Insurance Companies

As lawmakers consider ways to pay for health reform, use our glossary of potential offsets to get caught up fast.

By Beth Sussman

Updated: January 1, 2011 | 2:18 p.m.
July 23, 2009

Glossary Of Offsets Efficiencies • Public Option • Health IT • Comparative Effectiveness • Medical Homes • Medicare Cost Sharing Taxes • Taxes For Noncompliance • Surtax On The Wealthy • International Tax Changes • Sugary Beverage And Alcohol Tax • Tax On Insurance Companies • Plastic Surgery Tax • Changing Tax Exclusion For Employment-Based Health Insurance Quality Of Care • Measuring Quality Of Care • Preventive Service • Expanding Disease-Management Services Provider Payment Revisions • Pay For Performance • Abolishing The SGR • Bundling • Reduce The Annual Update Factor • Partial Capitation • Penalties For High Readmission • Cut Payments To Medicare Advantage TOPIC PAGE: Health Care

Updated at 4:15 p.m. on Nov. 24 to reflect continuing legislation.

Definition

Under one proposal, insurance companies would be subject to an annual excise tax to help cover the cost of health care reform. Another proposal would involve taxing insurance companies and possibly employers that offer expensive "Cadillac" plans.

Executive Summary

The Democratic senators who have proposed taxing insurance companies -- Charles Schumer of New York, Robert Menendez of New Jersey and Debbie Stabenow of Michigan, all members of the Senate Finance Committee -- argue that it's only fair that insurers share the burden since they will benefit financially from health care reform.

"It makes sense that private health insurers, who are going to gain 40 million customers in a reformed system, should pay their fair share," Schumer said at a press conference last week.

The senators cited an increase in the profits of health insurance companies -- by 428 percent for 10 top insurers from 2000 to 2007, according to a report by the liberal coalition Health Care For America Now based on Securities and Exchange Commission filings -- as a reason to expect more from the insurance industry.

"Every other industry is kicking in," Schumer said. "For the insurance industry to stand aside is not fair."

But Robert Zirkelbach, spokesman for America's Health Insurance Plans, a group representing the health insurance industry, said that claims that the health insurance industry is not sharing responsibility for health care reform are not true. The industry has agreed to guarantee coverage for individuals with pre-existing conditions and to stop using gender or medical condition as a basis for premiums, he said.

"These reforms would completely overhaul how health insurance is provided today," Zirkelbach said. "The health insurance industry has stepped up to do their part for health care reform."

He added that a tax on health insurance companies would drive up the overall cost of health insurance and that the companies are already taxed at the state and federal levels.

Meanwhile, a tax on high-end, or “Cadillac,” insurance plans has been considered as a way of discouraging consumers from buying into more expensive plans. Ideally, taxing those plans, defined as those with premiums above $8,500 for an individual and $23,000 for a family, would drive down costs across the board. However, some experts warn that such a tax will hit middle class consumers more than it would affect the wealthy and that the eventual cost would be passed on to consumers.

Max Savings

An annual fee on insurers would raise $60.4 billion over 10 years. Placing a 40 percent tax on plans with premiums above $8,500 for an individual and $23,000 for a family would raise $149 billion by 2019.

Plans

The Senate bill would place an annual tax on insurance companies as well as a 40 percent tax on "Cadillac" plans. The House bill does neither.

Links

• Statements by Sens. Schumer, Menendez and Stabenow

• America's Health Insurance Plans on health care reform

• "Insurers May Face Fees to Help Fund Health Overhaul," Bloomberg News, July 16

• "Finance Senators Coalescing Around Tax On Insurance Firms," CongressDaily, July 16 (subscription)

• "Kerry Floats Compromise On Insurance Tax Exclusion," CongressDaily, July 21 (subscription)

• "Is Tax On ‘Cadillac’ Plans Fair?," AP

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