States Being Made To Absorb Part of ACA Insurer Fee

A fee on insurers intended to help fund the Affordable Care Act is instead being passed on to states, which could end up paying about $13 billion over less than a decade, the AP/New York Times reports.

Background

The fee was levied on insurers to help pay for the ACA, which brought insurers a "windfall" of new customers. However, insurers say that in response to the fee they have raised prices for small businesses and individuals. However, states also are paying some insurers more to run Medicaid programs.

According to the AP/Times, the majority of not-for-profit insurers are exempt from the fee. However, for-profit insurers providing Medicaid managed care plans -- which cover about 70% of Medicaid beneficiaries -- are not exempt.

In October 2014, the federal government issued guidance requiring states to adjust what they pay insurers to compensate for the fee. Insurers then pay the fee to the federal government, who then reimburses a portion of the cost to the states.

The fee was due to the IRS for the first time in September 2014. State governments and insurers are currently "settling up" for the fee, according to the AP/Times.

Effect on States

Through the process, states end up losing about 54 cents per dollar, without Medicaid beneficiaries seeing any added benefit, the AP/Times reports. According to a 2014 Milliman report, states that contract the most for-profit Medicaid managed care companies will face the highest costs under the fee, including:

• Florida and Pennsylvania, which each will make an estimated $1.2 billion in payments over a decade;
• Texas, which will make up to $1 billion in payments over a decade;
• Tennessee, which will make up to $884 million in payments over a decade; and
• California, which will make up to $798 million in payments over a decade.

Calls for Repeal

Insurers and other stakeholders have called for a repeal of the tax, arguing that it leads to higher prices for consumers.

Matt Salo, executive director of the National Association of Medicaid Directors, said, "At the end of the day, it remains a terrible policy no matter how it's implemented, and everyone would welcome its repeal," adding, "I mean, you're essentially having one level of government tax another to do this" (AP/New York Times, 5/18).