D.C. Council approves broad new tax on health insurance to cover city’s exchange
D.C. Council approves broad new tax on health insurance to cover city’s exchange
(about 9 hours later)
The D.C. Council on Tuesday unanimously approved a one-of-its-kind new tax on all health-related insurance products sold in the nation’s capital to solve a big money problem faced by its online health insurance exchange.
The D.C. Council on Tuesday unanimously approved a broad tax on all health-related insurance products sold in the nation’s capital to solve a big money problem faced by its online health insurance exchange.
Like the 14 states that started online marketplaces, the District faced a year-end deadline to prove its Web site can move past technology glitches to meet the next looming challenge in President Obama’s Affordable Care Act: financial self-sufficiency.
Under the measure, which will take effect on an emergency basis but eventually face congressional review, the exchange will fund its operating costs through a 1 percent tax on more than $250 million in insurance premiums paid annually by those who live and work in the District.
But unlike the others, the city did not have enough customers buying insurance on its Web site to copy the funding scheme adopted by most states and the federal government: a tax of a few percentage points on premiums sold through an exchange.
The taxable plans will include long-term care, disability, vision, dental, hospital indemnity and dozens of other health-related policies — almost all of which are not allowed to be sold on the exchange.
To cover its $28 million annual budget, the District’s exchange would have to levy a whopping 17 percent tax on every health plan sold on its Web site.
In warnings to city exchange officials, insurers who offer those products have threatened that the costs will be passed on to D.C. customers and that the exchange is certain to face a court challenge over whether it is overstepping the intent of Congress and the Affordable Care Act by taxing products not sold on the exchange.
As an alternative, Mayor Vincent C. Gray (D) on Tuesday proposed and the council unanimously endorsed legislation granting the District’s exchange board broad new power to tax any health-related insurance product sold in the city — regardless of whether it’s offered on the exchange.
Council member Muriel Bowser (D-Ward 4), the Democratic nominee for mayor, backed the tax but said she did not want to give the exchange a “blank check” to assess health plans ever-higher taxes to fund the exchange.
Under the legislation, which will take effect on an emergency basis but eventually face congressional review, D.C. would fund most of its exchange through products not eligible for sale on the exchange, adding a 1 percent tax on more than $250 million in insurance premiums paid annually by those who live and work in the District.
Council member David A. Catania (I-At Large), who is running for mayor as an independent, said that all health-related policies should be taxed regardless of whether they’re sold on the city’s exchange because they all benefit from a healthier public.
Those plans include long-term care, disability, vision, dental, hospital indemnity and dozens of other health-related policies. Insurers would be responsible for turning over the sliver of premium costs to the exchange.
Like the 14 states that started online marketplaces, the District faces a year-end deadline to prove that its Web site can move past technology glitches and meet the looming challenge in President Obama’s Affordable Care Act: financial self-sufficiency.
In warnings to city exchange officials in recent months, insurers have threatened that the costs will be passed on to D.C. customers and that the exchange is certain to face a court challenge over whether it is overstepping the intent of Congress and the Affordable Care Act.
But unlike the others, the city does not have enough customers buying insurance on its Web site to adopt the funding plan being employed by most states and the federal government — a tax of a few percentage points on premiums.
“Federal and District of Columbia law are clear,” read a statement from the American Council of Life Insurers Monday. “The D.C. Health Exchange Authority can only assess carriers of qualified health plans under its jurisdiction. . . . We urge the Authority to withdraw its proposal.”
To cover its $28 million annual budget, the District’s exchange would have to levy a whopping 17 percent tax on every health plan sold on its Web site.
In debate before the vote Tuesday, D.C. Council Chairman Phil Mendelson (D) said he was concerned that there was no limit on how much the exchange could eventually tax health insurers. “We have been very supportive of the exchange, we want the exchange to succeed,” he said. “But now with the assessment, it has not limit. . . . We want that cost to be prudent.”
As an alternative, Mayor Vincent C. Gray (D) on Tuesday proposed legislation granting the District’s exchange board broad new power to tax any health-related insurance product.
Council member Yvette M. Alexander (D-Ward 7), chair of the Health Committee, said she would pursue funding for an annual audit of the exchange’s financing and did not expect the assessment to exceed 1 percent.
Council member Yvette M. Alexander (D-Ward 7), chair of the Health Committee, said she would pursue funding for an annual audit of the exchange’s financing. She said she did not expect the assessment to exceed 1 percent.
“We don’t want it to be willy-nilly and we want some money,” she said.
“We don’t want it to be willy-nilly, and we want some money,” she said.
Mila Kofman, executive director of the exchange, known as D.C. Health Link, said insurers of all affected policies will benefit from a well-running D.C. exchange — namely, a healthier society that cashes in less often on policies.
Insurers including Unum and Aflac had been among the most vocal opponents of the District’s plan. They argued unsuccessfully to exchange officials that their products — which in the event of a loss directly pay clients, not hospitals or doctors — are more financial-planning tools than health-insurance options.
But Kofman also said D.C. simply has no choice: “No other state needs to do this because they have higher population,” Kofman said. “We are in a unique situation.”
They have also focused on broad language in the proposed legislation — “all health-insurance risks originating in or from the District” — to question if it could someday be used as the exchange’s prerogative to add a tax to life-insurance policies or medical portions of car insurance.
Insurers like Unum and Aflac had been among the most vocal opponents of D.C.’s plan. They argued unsuccessfully to the exchange that their products — which in the event of a loss pay clients directly, and not hospitals or doctors — are more financial planning tools than health-insurance options.
Mila Kofman, executive director of the exchange, said that is not the exchange’s intent and that the tax would hew closely to an established city program that does not tax those additional products.
Their products are not allowed to be sold on the exchange, so they receive no ancillary benefit, they say. They have also focused on broad language in the proposed legislation — “all health-insurance risks originating in or from the District” — to question if it could someday be used as the exchange’s prerogative to add a tax to life-insurance policies and/or medical portions of car insurance.
Kofman said that is not the exchange’s intent and that the tax would hew closely to an established city program that does not tax those additional products.
On Kofman’s side are most of the insurers who compete on D.C. Health Link. If the cost of running the exchange is not spread out across a bigger pool of insurers, they say, the cost of the coverage they offer on the exchange would have to rise significantly, likely making it harder for the poorest to comply with the law.
“One time, we as a city decided to have an arena, the Verizon Center, and whether you like hockey or basketball, all of us got hit with an arena tax,” said David Wilmot, executive director of the D.C. Association of Health Plans. “If an arena was important, and the entire business community was assessed . . . I can think of no more important policy initiative than health care. I don’t see why we can’t make a case for all of us to pay.”
AmeriHealth, the city’s largest Medicaid Managed Care Organization, however, wrote to the exchange in January saying its funding scheme called into question the very notion of self sufficiency.
In addition to taxing products beyond the exchange, charging the assessment to MCOs would trigger a higher capitation rate paid by the city’s Department of Health Care Finance.
Essentially, “the fee would amount to a government subsidy” of the D.C. Exchange, wrote Karen Dale, executive director of AmeriHealth District of Columbia. Dale declined to comment further on Monday.
Caroline Pearson, spokeswoman for the market research firm Avalere Health, said the District’s quandary may be the first of many questions about the financial viability of smaller state exchanges.
“Everyone, honestly, has been so focused on getting these up and running that as we move forward in time, we will see the challenge of keeping these financially sustainable,” she said.
Two states have smaller populations than the District — Vermont and Wyoming. Vermont is paying for its exchange in part by raising rates on paid insurance claims. Wyoming is utilizing the federal exchange, which charges insurers 3.5 percent of premiums collected on plans sold on the exchange.
Alexander, the Health Committee chair, said she was convinced that the exchange had found the right balance in spreading around the pain of paying for the exchange.
“Overall I think everyone benefits, and overall when you look at this industry, they are making a lot of money — no one is feeling sorry for the insurance industry in the realm that they are hurting for money,” Alexander said.
