State Medicaid agencies say Congress' decision to suspend the Affordable Care Act's tax on health insurers for one year is a good first step, but they are pushing for its permanent repeal.
While most private health insurance plans have had to pay the tax themselves, states that contract with Medicaid managed-care plans have had to cover the premium tax to ensure that the health plans receive actuarially sound rates. Thirty-eight states and the District of Columbia contract with Medicaid managed-care plans.
Last month, six Republican-led states sued the Obama administration claiming they should not have had to pay the fee as there was nothing in the Affordable Care Act that said they would be responsible for the tax. The suit seeks an injunction against the federal rules that say states are responsible for the fee. It also asks that states be refunded for what they've already paid.
Texas' Health and Human Services Commission, which is in one of the six states suing the administration over the tax, has paid $210 million in federal and state funds to cover the tax. “Texas supports the one-year reprieve, but that should be the first step,” said agency spokesman Bryan Black. “The state is advocating for abolishing the tax completely.”
Congress' decision to suspend the ACA's tax on health insurers for one year will cost the federal government $13.9 billion. That money would have helped cover federal costs for expanding Medicaid coverage to low-income adults and to subsidize premiums for individuals and families enrolled in ACA exchange plans. The feds are paying 100% of the cost for the Medicaid expansion population through the end of this year, after which the federal share eventually declines to 90%.
Congress embedded the one-year freeze of the health insurance tax in the year-end omnibus budget bill, along with two-year delays of the ACA's medical-device tax and "Cadillac" tax on high-cost employer plans. Many political observers believe it's unlikely that these ACA taxes, particularly the device and Cadillac taxes, will ever be reinstated. ACA supporters fear that permanent repeal of these taxes would seriously undermine the financing for the law's coverage expansion.
State Medicaid agencies viewed the one-year tax suspension of the health insurance tax as good fiscal news. For instance, Virginia has spent $72.4 million in state and federal Medicaid funds to cover the tax. It estimates the reprieve will save the state $25 million in state funds, which Virginia officials appreciate, said Virginia Medicaid spokesman Craig Markva.
Others say Congress needs to go further. The one-year suspension “doesn't fully address the long-term issue,” said Utah Health Department spokeswoman Kolbi Young. Her state has spent $10 million in state funds since 2014 to pay for the tax. She argued that premiums paid to health plans in the Medicaid and Children's Health Insurance Program should be exempt from the tax.
Other state Medicaid agencies feel the same, said Matt Salo, executive director of the National Association of Medicaid Directors. The provision should have been structured to exclude Medicaid, he argued, because, as written, it's essentially a federal tax on the federal and state governments. “That just makes no sense.”
In 2014, it was estimated the tax would add $36 billion to $39 billion to the national cost of Medicaid by 2024, according to a report by the actuarial firm Milliman paid for by Medicaid Health Plans of America, a trade group.
“Including (the one-year suspension) in the bipartisan omnibus spending bill shows the widespread opposition to this ill-conceived policy where the government ends up taxing itself, and we look forward to its eventual full repeal,” said Jeff Myers, CEO of MHPA.
