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Passing the Health Care Buck

Wednesday, June 25, 2014

Posted by Katie Vlietstra-- By now, we've all heard about the challenges and the ups-and-downs of the new health care law. From cancelled plans to delayed programs and technical glitches in online applications, the Affordable Care Act has had its share of problems. However, in the end, the Affordable Care Act -- or ACA -- has turned out to help millions of Americans young and old. Far from perfect, the Department of Health and Human Services declared success with over eight million people enrolled, and over 30 percent being young Americans aged 18-34.

The reality of the new law is that if it is a "success" or not oftentimes depends on where you live. While some states are having problems implementing their own state-based exchange program, other states are relying on the Federal Government to carry its citizens. And in Washington, DC, a disturbing unintended consequence is taking place: The D.C. City Council recently passed a new law that applies a new health care tax on health insurance carriers. The D.C. City Council passed the Health Benefit Exchange Authority Financial Sustainability Emergency Declaration Resolution of 2014 in May that leverages a 1 percent tax on all health-insurance carriers with gross receipts of $50,000 or more within the District of Columbia.

Why? Washington, D.C. and the board of D.C. Health Link -- the Washington, D.C. health care exchange -- are concerned about the financial well-being of the exchange and needs a new revenue stream to help support its program. In fact, there is a growing list of sales taxes -- from gym to yoga fees -- that join the new health care tax.

The addition of this new health care tax will add to the operating costs of the small business community in Washington, D.C. It's not unreasonable to assume that this new tax on health insurance carriers is going to be passed along to the individual policyholder's premium costs. Washington, D.C.'s challenge in setting up its exchange program was its population: many in the area are uninsured and the most needy would contribute to a crowded pool driving up costs thereby hurting those it was trying to serve.

The actions taken in Washington, D.C. are not only shortsighted, but also an unwelcomed trend that we should be wary of happening in other metro-areas across America. Many cities are looking for ways to foster growth of their small business communities, and slapping a new health care tax amidst a fluid health insurance marketplace certainly won't help.

For instance, metro-areas like Colorado Springs, CO, Boise City, ID, and Houston, TX, earn top grades for the most "business friendly" environments, according to a small business study by Thumback in partnership with the Ewing Marion Kauffman Foundation. The study rated metro-areas based on elements of starting a business including, overall regulations, ease of hiring and training.

One of the key indicators small business owners reported factoring into their belief about the "business friendliness" of a particular metropolitan area was the fairness of the "tax code and tax related regulations". As states and metro-areas attract the best talent with earning potential of millions of dollars in annual revenues, additional health care taxes isn't the way to go about it.

Millions of small business owners are finally starting to get a grasp on the new costs associated with the ACA health care law. As we all know, containing costs in our family life just as our small businesses takes budgeting and discipline. An increase in our health care premiums, resulting directly from the new health care tax, is an irresponsible way for Washington, DC to deal with its budget woes. In fact, Washington, DC doesn't even rank on the list of business friendly metro-areas in the study mentioned above.

If metro-areas replicate the actions of Washington, D.C. in generating funds from health insurance carriers, it threatens the very livelihoods of many in the small business community and the local economies. Sole proprietors to micro-businesses may be forced to relocate to places where a more robust business environment exists. Leveling a 1 percent tax may seem like a near-term solution to a city's budget misfortunes, but the overwhelming evidence shows in the long-term a city, including the District of Columbia, does itself no favors by going down such a road.

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