Comment letters on the proposed rule issued by the Treasury Department to implement the new national health insurance tax (or HIT, as we like to call) were due earlier this week. As usual, NAHU had some constructive comments for the Administration.
NAHU already has a strong history of opposing the HIT, which could add as much as $500 to the average family small-group premium in 2014 and subsequent years. NAHU and other concerned organizations around Washington have come together to form the Stop the HIT Coalition to help raise awareness and lobby for the repeal of the health insurance tax. Just last month, NAHU Vice President Ryan Thorn came to Washington to testify before the House Small Business Subcommittee on the burden the health insurance tax will have on the nation’s small businesses.
In addition to our legislative efforts, though, we wanted to provide comment to the Treasury Department on its implementation strategy. We are concerned that the proposed rule on how the tax will be collected and treated could actually result in much higher costs for consumers than necessary, since it essentially allows for double taxation. Our comments to the Administration were designed to encourage them to revise their course with the goal of saving American health insurance consumers some premium dollars in 2014 and beyond.
The proposed rule on the health insurance tax requested comments on whether the tax intended for the carriers should be explicitly labeled as income. NAHU does not believe that this specification is necessary, as existing tax law well establishes what is considered income. However, we do believe that, based on long-standing federal income tax principles, the final regulation should recognize the application of well-established tax policy and rules that may apply and permit any fees recovered from policy holders to be excluded from the health insurance companies’ gross income if the conditions of the tax policy and rules are met.
Because there is a direct connection between the fee paid to the government by the insurance companies and the amounts recovered, the payment of the fee and the recovery of the fee amounts should be considered a single integrated transaction. Under the well-established “tax benefit rule,” since the fee is not deductible by the insurance company, the fees recovered from policy holders should not be included in the insurance company’s gross income.
From a broader policy perspective, excluding the recovered fees from the insurers’ gross income would help minimize the impact of the fee on premium costs. In contrast, if insurance companies are required to include the recovered fees in gross income, recovery of the total cost of the fee would include the additional federal income tax, resulting in even higher premium costs for affected employers.
On the legislative side, NAHU and its coalition partners have been able to build strong bipartisan support for an overall repeal of the HIT. House Bill 763, introduced by Representatives Charles Boustany (R-LA) and Jim Matheson (D-UT), has 208 cosponsors. Its Senate companion (S. 603), introduced by Senators John Barasso (D-WY) and Orrin Hatch (R-UT), has 19 cosponsors.