Net Insurance Cost Spikes 13.2% in 2018 Due to Health Insurance Tax
The health insurance tax spurred spending growth in net insurance cost, as well as private payer, Medicare, and Medicaid spending.
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- Health payer spending in 2018 saw a 13.2 percent increase in net insurance costs, driven largely driven by the health insurance tax reinstatement, an analysis by the Centers for Medicare and Medicaid Service (CMS) Office of the Actuary concluded.
After slowed spending growth in 2017, healthcare payers increased their expenditures to compensate for the health insurance tax and higher non-personal healthcare spending.
“The slight acceleration in health care spending growth in 2018 reflected faster growth in non–personal health care spending, particularly in the net cost of health insurance,” the analysis found.
“Price growth was faster for health insurance because of the impact of the reinstated health insurance tax, which had been suspended in 2017,” it added. “Personal health care spending grew at the same rate in 2018 as in 2017, as slower growth in the use and intensity of services was offset by faster growth in prices for most health care services.”
Private payers’ spending grew by 5.8 percent, or over a third of the national spending on health.
A couple of factors influenced this increase. First, a district court re-enacted the health insurance tax, which was suspended in 2017. The health insurance tax cost $8 billion in 2014 when first enacted and $14.3 billion in 2018 after the year of suspension, an increase of $6.3 billion in just two active years.
This weighed on healthcare payers’ spending significantly that year.
Further, private healthcare enrollment dropped by 0.8 percent. The Health Affairs report showed it was caused by less individuals purchasing plans on the Exchange, whether individually or through an employer.
While it would seem that with less members to cover the spending would decrease, spending per enrollee jumped 6.7 percent to $6,199 per member. The last time the increase rate was this high was in 2004 when the percent spending increase was 7.5 percent. However, the rate came close in 2009 at 6.6 percent.
For 2018, private health insurance net costs drove the growth upwards. While Medicare enrollment was low (0.1 percent), its spending increased.
Overall, Medicare spending rose 6.4 percent, or 2.2 percent higher than spending growth in 2017. The $750.2 billion spent by Medicare contributed to 21 percent of the industry’s overall spending. It picked up the pace after 2017.
The growth in expenditures per Medicare beneficiary was equally significant, increasing by 3.7 percent in 2018, compared to 2017 when it only rose by 1.6 percent.
The analysis attributes this growth fluctuation to the reinstatement of the health insurance tax, which ramped up private health plans’ Medicare spending in 2018.
Aside from spending per enrollee, administrative costs and net costs of insurance accelerated Medicare spending growth in 2018. While spending in these areas dropped by 2.4 percent in 2017, it shot up 16 percent in 2018.
Private payers contributed 36 percent of Medicare spending, with a 3.6 percent increase in per enrollee expenditures.
Again, the health insurance tax was in part responsible for this volatility both in administrative costs and in private payers’ spending. Medicaid spending rose three percent and contributed 16 percent to the national healthcare expenditures.
The spending growth was not as high as it could have been, though it did increase between 2017 and 2018. A decline in enrollment and a slower pace of spending growth in Medicaid managed care organizations helped to counteract the spending growth.
The strong economy led to low Medicaid enrollment in 2018.
“Except for the slight uptick that was driven primarily by the one-time impact of the reinstated health insurance tax, growth in 2018 was relatively stable,” the analysis found. “Still, changes may be on the horizon. In 2019 that tax was suspended, and Medicaid coverage was expanded in five additional states, while at the same time the individual mandate penalty was effectively repealed.”
Overall, the national healthcare spending levels grew by 4.6 percent in 2018, which was equal with 2016 before the health insurance tax was suspended.
“For healthcare, the relative stability in spending growth since the insurance expansions in 2014 and 2015 reflects continued low growth in medical prices, which is influenced by both low economy-wide price growth and negative excess medical price inflation, as well as relative stability in health insurance enrollment,” the experts concluded.
