By J.D. Harrison
Published: May 12, 2013

Many small-business owners worry that a new tax on insurance providers in the health-care law will mean higher premiums for them, undermining the law’s capacity to lower their health-care costs.

Starting next year, the federal government will charge a new fee on health insurance firms based on the plans they sell to individuals and companies, known as the fully insured market. Meanwhile, the provision exempts health-insurance plans that are set up and operated by businesses themselves (the self-insured market).

Revenue from the tax will help pay for the health-care overhaul, which is expected to extend coverage to millions of uninsured or underinsured Americans.

However, because most large corporations self-insure their workforce, experts warn that insurance companies will pass the costs directly to small businesses. The vast majority purchase coverage in the fully insured market.

“Insurers have confirmed back to me that the tax will be passed down to consumers, and the direct impact will be staggering,” Ryan Thorn, owner of a small insurance planning firm near Salt Lake City, told lawmakers during a congressional hearing Thursday. “It disproportionately hits individuals and small-business owners, the people who have been hurt most by these challenging times.”

During his testimony, Thorn read letters from his small-business clients about the likely impact of the new health insurance tax. One wrote that the tax “scares the daylights out of us,” while another warned that it would likely “hasten the decision to move away from providing group coverage for our employees.”

The Department of Health and Human Services reports that among private businesses that offer health insurance, three of every four firms with between 100 and 500 employees purchase coverage in the fully insured market. The number jumped to 87 percent for firms with fewer than 100 workers.

On the other hand, 82 percent of large firms (500 or more employees) run their own health insurance programs.

To read entire story, click here.