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DC Insurers May Sue Over Obamacare Exchange Tax

Washington, D.C. insurers that aren’t participating in the district’s Obamacare exchange are threatening to sue over a city council-approved plot to tax all city insurers to fund the exchange.

The struggling city-run Obamacare exchange proposed the tax on all insurance companies that sell products in D.C., whether or not they sell coverage in the health-reform exchange, in order to fund ongoing operations for the marketplace. (RELATED: DC Will Tax All Insurers To Pay For Obamacare Exchange) 

The D.C. exchange’s director, Mila Kofman, told Kaiser Health News that companies that oppose the tax have threatened legal action, but did not name names.

The D.C. City Council approved a plan to tax insurers 1 percent on customers’ annual premiums for a laundry list of health insurance offerings, including not only traditional medical coverage but supplemental insurance products that Obamacare exchanges won’t offer.

Long-term care, disability, vision, dental, worker’s compensation, and hospital indemnity coverage will all be taxed under the plan. D.C. residents pay an estimated $250 million in insurance premiums that would be subject to the tax.

The city council had the power to approve the tax on an emergency basis for 90 days, but the tax will eventually have to undergo congressional review.

Insurance companies — especially those whose products aren’t eligible to be sold on the exchange — believe the tax is unfair.

“The entire industry of health carriers would be subjected to the assessment,” said Chuck Piacentini, an assistant vice president at Unum Group, which sells disability, critical illness, long-term care and life insurance policies in D.C. The company is considering its options, according to Kaiser Health News, but hasn’t yet announced whether they will sue.

The leading industry trade group hit the legality of the plan before its adoption. In a letter to the D.C. exchange, regional director for America’s Health Insurance Plans Geralyn Trujillo questioned taxing insurers which “derive no direct or indirect benefit from the exchange,” such as those offering supplemental insurance products.

The district’s exchange needs the funding to cover simple operating expenses — which are expected to run up to $28.8 million in 2015 — once its $133 million in federal grants runs out.

Many state exchanges are looking for ways to become sustainable now that federal funding for Obamacare’s launch may be running out. Some, including Minnesota, Nevada and California, are upping or instituting taxes on insurers based on each exchange customer’s monthly premium as a means of paying the bills.

But that tactic may not work for marketplaces with especially low enrollments, like the small D.C. exchange. The district’s exchange was the second most expensive exchange per enrollment, doling out $12,467 per Obamacare sign-up. (RELATED: States That Opposed Obamacare Spent The Least Per Person On Enrollment) 

Colorado’s health exchange is considering a similar proposal to tax all insurers, after a proposal to hike fees on monthly insurance premiums from 1.4 percent to 1.7 percent was shot down by the exchange board. (RELATED: Obamacare exchange asks for fee on all insurance policies) 

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