<nobr>Dec 4, 2009</nobr>

CBO Finds Nearly 20% of Employment-Based Policies Would Be Hit with Excise Tax in 2016 on High-Cost Insurance Plans

An analysis prepared by the Congressional Budget Office finds that under current law, about 19 percent of employment-based policies would have premiums that exceeded the proposed threshold in 2016, and thus, would be subject to an excise tax on employment-based policies whose total premium (including the amounts paid by both the employer and the employee) exceeded the threshold.

CBO released the analysis, which was prepared at the request of Senator Evan Bayh (D-IN) just as the Senate was preparing to debate the Patient Protection and Affordable Care Act (H.R. 3590), which includes the proposed excise tax.

Under the current proposal, the tax on such policies would be 40 percent of the amount by which the premium exceeded the threshold, which would be set at $8,500 for single policies and $23,000 for family policies in 2013 (the first year in which the tax would be levied). After 2013, the dollar amounts would be indexed to overall inflation plus 1 percentage point.

CBO said that because health insurance premiums under current law are projected to increase more rapidly than the threshold, the percentage of policies with premiums under current law that would exceed the threshold would increase over time. CBO added that for policies whose premiums remained above the threshold, the tax would probably be passed through as a roughly corresponding increase in premiums, but most employers would probably respond by offering policies with premiums at or below the threshold.

CBO also said that the majority of the affected workers likely would enroll in plans with lower premiums. Plans could achieve lower premiums through some combination of greater cost sharing (which would lower premiums directly and also lower them indirectly by leading to less use of medical services), more stringent benefit management, or coverage of fewer services, the report said.

CBO's analysis also found that the legislation would have negligible effects on premiums for employment-based coverage, which would account for about five-sixths of the total health insurance market. In the large group market (defined as consisting of employers with more than 50 workers), the legislation would yield an average premium per person that is zero to 3 percent lower in 2016 (relative to current law).

Questions or comments on this issue should be addressed to either Gretchen Young, gyoung@eric.org, or Adam Solander, asolander@eric.org.



Websites:

Link to CBO Analysis

Back to Previous Page