The Small Business Health Insurance Tax
One of the main goals of health reform is to make coverage more
affordable for small businesses, but the Patient Protection and
Affordable Care Act (PPACA) only makes that goal harder to achieve. In
fact, the new healthcare law includes an $145 billion health insurance
tax (HIT) that will fall hard on small businesses.
The HIT, which is levied on health insurance companies, will almost
entirely be passed on to consumers in the fully insured marketplace,
where nearly all small businesses and the self-employed purchase their
coverage. This new tax on small businesses will raise insurance costs
for already struggling small businesses and is contrary to the goals of
How does the tax work?
PPACA assesses a tax on all health insurance companies based on their
“net premiums” written. This tax will raise $8 billion in 2014, rise to
$18 billion in 2024, and the amount will continue to increase by the
rate of premium growth for subsequent years. The amount of the tax that
the insurance company is responsible for is equal to the percent of the
market that the insurance company covers. The larger the insurance
company’s market-share, the higher their annual HIT. One thing insurers
have made clear throughout the healthcare debate: new taxes will result
in new costs passed along to customers. The group that experiences the
most cost-shifting is the fully insured market.
- The HIT affects the small business community because it falls
solely on the fully insured marketplace, where 88% of small businesses,
their employees and the self-employed purchase their insurance.
- According to a recent study by NFIB’s Research Foundation, the
HIT will reduce private sector employment by 146,000 to 262,000 jobs in
2022, with 59% of those losses falling on small business.
- A recent study by Doug Holtz-Eakin shows this new tax will cost
nearly $5,000 per family over a decade. This extra cost is on top of
what a small business is already paying.
- The Joint Committee on Taxation estimates that eliminating this
fee could decrease the average family premium in 2016 by $350 to $400.
- The Joint Committee on Taxation and the Congressional Budget
Office (CBO) confirm that the HIT would be largely passed through to
consumers (small and family-owned businesses) in the form of higher
- The HIT does not sunset. This tax grows to 18 billion in 2024 and is adjusted for premium growth.
Current legislation to repeal the HIT
- H.R. 763, the Jobs and Premium Protection Act, introduced by Rep. Boustany and Rep. Matheson
- S. 603, the Jobs and Premium Protection Act, introduced by Sen. Barrasso and Sen. Hatch
Read a Letter from NFIB’s President & CEO – Smell Smoke? Extinguish the HIT Before it Burns Your Business