Impact of the Insurer Fee and the Excise Tax on the Federal Employees Health Benefits Program

The annual insurer fee and excise tax in the proposed Patent Protection and Affordable Health Care Act pending in the Senate would have a significant negative impact on the Federal Employee Health Benefits Program. The annual insurer fee would lead to increased premiums, and in order to avoid the excise tax, plans would be forced to reduce benefits.

Additionally, when considered in tandem, the annual insurer fee and the excise tax create a vicious cycle; the annual insurer fee would push premiums ever closer to, or over, the excise tax threshold which in turn would force carriers to reduce benefits at an even faster pace in order to avoid the excise tax.

This squeeze play will be exacerbated by the fact that the PPACA indexes the excise tax thresholds to the annual Consumer Price Index for all Urban Consumers (CPI-U) increase plus one point. Because the CPI-U rises much more slowly than the medical costs that make up the vast majority of carriers’ costs, upward adjustments to the excise tax thresholds would not be sufficient to mitigate the rate of benefit cuts.