The most recent markup of the health care reform plan put forth by Senator Max Baucus (D-MT), Chair of the Senate Finance Committee, contains a new $6.7 billion annual sector fee imposed on health insurers. Starting in 2010—well before the individual coverage mandate would go into effect—each affected insurer would pay a portion of the sector fee corresponding to its market share, measured by net health insurance premiums. The fee would hit not only traditional for-profit insurers, but also tax-exempt organizations, such as fraternal beneficiary societies, that provide health insurance. Only two forms of health insurance would be exempted: insurance directly offered by government entities, and businesses’ self-insurance of their employees’ health risks.

What’s at Stake

  • The costs of private insurance would likely increase as a result of this fee and other features of the proposed legislation, such as the proposed tax on high-priced "Cadillac" policies.
  • The fee would not be tax deductible, thus magnifying its after-tax effect.
  • Businesses that currently buy private insurance for their employees may find it more cost-effective to self-insure.

Steps To Consider

Affected entities should carefully evaluate this fee’s potential impact. In particular, insurers should consider their current and projected market share, as well as their elasticity of demand, which would determine their ability to pass on this fee.