16 October 2013Re/insurance

ACA health tax not a reinsurance opportunity

A three-year $63 tax on health insurance plan enrolees will not stimulate reinsurance buying, but it will create a war chest for insurers and a “ready source of funds to smooth out the impact of high cost claims” associated with Obamacare.

That is the view of Robert Hartwig, president of the Insurance Information Institute, who said that the so-called ‘reinsurance tax’ outlined under the Affordable Care Act (ACA) was instituted to offset costs associated with “high cost cases that reach beyond a catastrophic cap”, not encourage any rethink in buying behaviour.  Hartwig said he doubted that the tax would “stimulate much, if any additional demand, for private sector reinsurance purchased by private health insurers”.

Hartwig explained that under the new measures “insurers will be reimbursed for 80 percent of the cost of claims between $60,000 and $250,000 per person”, with the reimbursement from the taxes collected effectively acting as a reinsurance payment.

The $63 dollar tax was included within the ACA in an effort to bridge the gap in claims experience that new accountable care organisations and the government face, he explained. “It is impossible to accurately predict average claim costs per person, or how those costs would be distributed across the various insurers participating in the exchanges”. The tax will provide a backstop to US insurers grappling with the demands of the ACA.