Hidden Tax on Private Health Insurance Policies

A contentious issue in the ongoing health care debate is the "hidden tax" imposed on private health insurance policies to cover the medical costs of the uninsured. Experts contend that this tax unfairly burdens businesses and insured families, with estimates suggesting that it raises the cost of an average insurance premium by as much as 7.7%. A new study by Families USA estimated that this tax costs families an average of $1,017 per year and individuals $368 per year. However, a contrasting study by the Kaiser Family Foundation puts the cost at a much lower 1%, or $133 for a family and $48 for an individual.

Key Takeaways:

• Families USA estimates that the average cost of an insurance premium increases by 7.7% due to the hidden tax, resulting in a family policy costing $1,017 and an individual policy costing $368 per year.
• The Kaiser Family Foundation report suggests that the hidden tax is much lower, at 1%, which translates to a family policy costing $133 and an individual policy costing $48 per year.
• The two studies disagree on the extent of cost shifting, with Families USA estimating that $43 billion in uncompensated care is cost shifted, while the Kaiser Family Foundation suggests a lower $8 billion.
• Jack Hadley, a senior health services researcher at George Mason University, argues that Families USA's estimate is an "exaggeration" and that physicians already set their fees at a high market level.
• The Families USA study excluded payments made by Medicare to hospitals serving low-income patients, which is disputed by the Kaiser Family Foundation.
• Hospitals have experienced a significant increase in bargaining power due to consolidation, which has allowed them to shift costs onto private insurers.
• Some researchers, such as John R. Graham of the Pacific Research Institute, contend that government programs like Medicare and Medicaid are largely responsible for cost shifting.

Statistics:

• Families USA estimates that the average cost of an insurance premium increases by 7.7% due to the hidden tax, resulting in a family policy costing $1,017 and an individual policy costing $368 per year.
• The Kaiser Family Foundation report suggests that the hidden tax is much lower, at 1%, which translates to a family policy costing $133 and an individual policy costing $48 per year.
• Families USA estimates that $43 billion in uncompensated care is cost shifted, while the Kaiser Family Foundation suggests a lower $8 billion.
• There were an average of 58 hospital mergers per year from 1990-2003, according to Academy Health.

Sources:

• Families USA report (no publication date)
• Kaiser Family Foundation report (no publication date)
• White paper by Sen. Max Baucus (no publication date)
• Academy Health report (no publication date)
• Milliman Inc. study (no publication date)
• Pacific Research Institute report (no publication date)
• Interview with Ron Pollack, executive director of Families USA
• Interview with Bruce Pyenson, principal of Milliman Inc.
• Interview with John R. Graham, director of health care studies at the Pacific Research Institute
• Interview with Ron Williams, CEO of Aetna