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$37 billion in Obamacare ‘insurer tax’ will hit Medicaid programs

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State and federal taxpayers will have to cover up to $37.7 billion of an Obamacare tax meant to go after health insurers, a study from actuarial firm Milliman Inc. finds.

This is due to the health care law overlooking a pre-existing law that governs the stability of state Medicaid programs.

The health insurer tax was written as part of the Obama administration’s quest to pay for Obamacare, while also penalizing insurance companies. The law applies the tax to all private health insurers — including those in 37 states that contract with state government to provide low-cost Medicaid coverage to the poorest population.

The problem arises when the tax is combined with a 1997 federal law which requires states to ensure that Medicaid plans are “actuarially sound.” In other words, the law prevents states from paying so little for Medicaid plans that the insurer loses money and drops out — and many states have already negotiated Medicaid prices as low as possible. Adding the Obamacare tax onto that knocks the balance off-kilter and puts many private insurers into the red.

In the private market, insurers are likely to deal with this problem by passing the fees along to the customer. Bloomberg notes that a 2011 study by the congressional Joint Committee on Taxation found that the insurer tax will result in a 2.5 percent increase in premiums.

But for Medicaid plans, the state government pays the bills, not the patient. So to avoid the Obamacare tax pushing Medicaid insurers’ plans into unsound territory, state governments have to pay the tax instead.

Milliman’s study found that state governments will be paying $13.6 billion over the next decade. The remaining $24.1 billion will end up being paid by the federal government, to the federal government; because Medicaid is structured as a state-federal partnership, Myers explained, the federal government pays matching funds, including on the insurer tax.

“From the feds’ perspective, you’re sticking your hand in your right pocket and moving money to your left pocket,” Jeff Myers, CEO of the Medicaid Health Plans of America, which commissioned the study, told The Daily Caller News Foundation. “But from the state’s perspective, I’m reaching my hand in my right pocket, pulling out a whole bunch of money, and giving it to the feds.”

The Affordable Care Act actually does have a provision to exempt Medicaid insurers from the tax — but only if they are nonprofits that also receive over 80 percent of their revenue from federal or state sources.

“If you think about the travesty of that decision, what you’re suggesting is that for plans that compete for the exact same populations and get paid the exact same amount of money,” Myers said, only a select few are going to be subject to the tax.

As a result, Myers told TheDCNF, states may have to shift away from the best program they’ve been able to find for Medicaid patients to any insurer that won’t have to pay the tax.

“States are going to have to make decisions whereby they don’t choose the best care for their Medicaid beneficiary, because some folks are exempt from the tax and others aren’t,” he concluded. “It really is not well thought out.”

“The whole point of the ACA was to get people insured, and now you’re putting a giant tax on it.” Myers concluded. “It just seems odd.”

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