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80–825 2013

THE HEALTH INSURANCE FEE: IMPACT ON SMALL 

BUSINESSES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH AND TECHNOLOGY 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MAY 9, 2013 

Small Business Committee Document Number 113–016 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

BLAINE LUETKEMER, Missour 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JAIME HERRERA BEUTLER, Washington 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

DAVID SCHWEIKERT, Arizona 

KERRY BENTIVOLIO, Michigan 

CHRIS COLLINS, New York 

TOM RICE, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRAD SCHNEIDER, Illinois 

RON BARBER, Arizona 

ANN McLANE KUSTER, New Hampshire 

PATRICK MURPHY, Florida 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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C O N T E N T S 

OPENING STATEMENT 

Page 

Hon. Chris Collins ................................................................................................... 1 

Hon. Janice Hahn .................................................................................................... 2 

WITNESSES 

William Dennis, Jr., Senior Research Fellow, NFIB Research Foundation, 

Washington, DC ................................................................................................... 4 

Ryan P. Thorn, President, Ryan P. Thorn Insurance Planning, Inc., South 

Jordan, UT, testifying on behalf of the National Association of Health 

Underwriters ........................................................................................................ 6 

Paul N. Van de Water, Senior Fellow, Center on Budget and Policy Priorities, 

Washington, DC ................................................................................................... 7 

Dean Norton, President, New York Farm Bureau, Elba, NY, testifying on 

behalf of the American Farm Bureau Federation ............................................. 8 

APPENDIX 

Prepared Statements: 

William Dennis, Jr., Senior Research Fellow, NFIB Research Foundation, 

Washington, DC ............................................................................................ 26 

Ryan P. Thorn, President, Ryan P. Thorn Insurance Planning, Inc., South 

Jordan, UT, testifying on behalf of the National Association of Health 

Underwriters ................................................................................................. 38 

Paul N. Van de Water, Senior Fellow, Center on Budget and Policy 

Priorities, Washington, DC .......................................................................... 42 

Dean Norton, President, New York Farm Bureau, Elba, NY, testifying 

on behalf of the American Farm Bureau Federation ................................. 44 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

Hon. Charles Boustany .................................................................................... 47 

MHPA - Medicaid Health Plans of America ................................................... 49 

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THE HEALTH INSURANCE FEE: IMPACT ON 

SMALL BUSINESSES 

THURSDAY, MAY 9, 2013 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, SUBCOMMITTEE ON HEALTH AND TECHNOLOGY, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2360, Rayburn House Office Building. Hon. Chris Collins [chairman of the subcommittee] presiding. 

Present: Representatives Collins, Luetkemeyer, Huelskamp, 

Hahn, Schneider and Matheson. 

Chairman COLLINS. Good morning. I call this meeting to order. 

We are joined today by our colleague, Congressman Jim Matheson from Utah, who will introduce one of our witnesses. Mr. Matheson is a lead sponsor with Congressman Charles Boustany of Louisiana of the House bill to repeal the health insurance providers’ 

fee. As of this week, I believe that bill has over 150 co-sponsors, 

and I am proud to be amongst them. Thank you for your leadership, Mr. Matheson 

I want to welcome all of our witnesses. We look forward to your 

testimony. Special thanks to Dean Norton, president of the New 

York Farm Bureau from Elba, New York, which I am honored to 

represent. 

Today we meet to examine the Health Care Law’s new annual 

fee on health insurance, which was included as a way to finance 

the health care Law. Beginning in 2014, the law assesses a fee on 

health insurance providers, which across the industry totals $8 billion and increases to $14.3 billion in 2018, and will continue to increase every year thereafter. The nonpartisan Joint Committee on 

Taxation estimates the fee will exceed $100 billion over the next 

10 years. Both the Joint Committee on Taxation and the Congressional Budget Office said they expect a very large portion of this 

fee to be passed through to the purchasers of insurance in the form 

of higher premiums, driving up the cost of insurance for families 

in all regions and small businesses in all sectors. 

Why is this a problem for small business? The health care Law 

exempts self-funded plans from the fee, but it applies to fully-funded ones. Small business owners typically do not have a large 

enough pool to self-insure, so they face the higher premiums in a 

fully-funded group plan, precisely the plans to which this tax applies. Of course, small business owners with more than 50 full-time 

equivalent employees do have the choice not to offer coverage, but 

then they pay the $2,000 per employee employer mandate penalty. 

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In fact, a March 2013 study released by the National Federation 

of Independent Business Research Foundation estimates the fee 

will raise the cost of employer-sponsored insurance by 2 to 3 percent in 2014, imposing a cost of nearly $2,000 per family by 2020. 

The study also predicts that the price increases caused by the fee 

will reduce private sector employment by up to 262,000 jobs by 

2020, with the majority of the losses falling in the small business 

sector. 

We are pleased to have a witness from the NFIB here today to 

discuss the study’s findings in greater detail. We will also hear 

from small business owners about the burden of the fee. The Joint 

Committee on Taxation has said this fee is essentially an excise tax 

based on the sale price of health insurance, so it will not be tax 

deductible. The Joint Committee estimated that repealing the fee 

would have the effect of stopping the 2 to 2-1/2 percent increase per 

year and eliminating the fee could reduce the average family premium in 2016 by $350 to $400, which represents the increase that 

would otherwise occur. 

To put this issue in context, we note that according to the U.S. 

Chamber of Commerce Quarterly Small Business Survey, the numerous requirements of the Health Care Law are now the biggest 

concern for U.S. small businesses, bumping economic uncertainty 

from the top spot after two years. These are the small businesses, 

our nation’s best job creators, that we are relying on to bring our 

still anemic economy back. They are the same small businesses 

whom we are asking to shoulder more and more mandates, taxes, 

regulations, and cost increases. 

Again, I want to thank our witnesses for being here today. I now 

yield to Ranking Member Hahn for her opening statement. 

Ms. HAHN. Thank you, Mr. Chairman. 

So before we deep dive into examining the possible impacts of 

this one part of the Health Care Law, it is important that we step 

back and I think remember that the Affordable Care Act has done 

a lot to make health insurance more affordable, more dependable, 

and more meaningful for American families and businesses. Under 

the Affordable Care Act, children can no longer be denied coverage 

because of a preexisting condition. Parents can keep their son or 

daughter on their insurance until age 26. Insurance companies are 

forbidden from canceling a policy for someone who has gotten sick 

or been hurt just because they had a typo on a form a decade ago. 

If an insurance company spends too much of the money it is paid 

on things that are not about quality health care, it has to refund 

its customers. The ACA empowers small businesses in the health 

insurance market through the exchange and offers significant tax 

credits to support health insurance for some of the smaller small 

businesses. Millions of Americans are already feeling the positive 

benefits of the Affordable Care Act in their health and their pocketbooks. 

Now, of course, I think there are ways that we can improve this 

law. I, for one, think we might have to do something to bring these 

hospital chargemaster list prices into the light of day, but as we 

move towards the implementation of some of the biggest components of ACA next year, there may well be some things we need 

to do to adjust and correct issues that come along. 

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Today we are examining how one component of the law, the tax 

on health insurance companies, may have an undesirable impact 

on consumers, including small businesses, in the form of increased 

premiums. As we examine the problems this fixed fee could impose, 

it is important to understand the origins of the provision. It was 

meant to raise $90 billion from insurance companies, not their customers. With the insurance mandate poised to deliver millions of 

new customers to insurance companies, it would seem fair to ask 

the insurance companies to pony up some of the cost of the law 

that was going to give them so many more millions in customers. 

However, these companies threaten to recoup the fee from consumers through increased premiums rather than absorb the fee 

themselves. Because higher premiums present a real risk to small 

employers and their ability to invest and grow, I am glad we are 

investigating this issue. We are looking for feedback to see how 

likely increased premiums are due solely to this section in the Affordable Care Act and what they would mean for our businesses. 

But at the same time we must recognize the difficulty presented in 

our task due to the number of major insurance market reforms 

that also become effective next year. These consumer protections in 

conjunction with exchanges, are expected to alleviate the continued 

rise in premiums over time. Market forces will have a major impact 

on how insurance providers react to being assessed a premium tax, 

while also being tasked with implementing other insurance reforms. Accordingly, this hearing will not only explore the burdens 

of higher premiums but also how the Health Insurance Tax will 

interact with other provisions contained in the ACA like the medical loss ratio and rate review panels. 

Just as with any other legislation that brings major changes, 

there has been much speculation about the positive and negative 

effects the ACA will have, particularly on our small businesses. For 

this reason it is important that we consider all aspects of the 

Health Insurance Tax before acting prematurely to eliminate it entirely. At a time when we are facing budgetary burdens, we must 

work to come up with a realistic remedy. The unintended consequences of a health insurance tax on small employers could affect 

their ability to provide affordable health insurance while also growing their business. 

This hearing serves as a starting point to examine this issue and 

start a dialogue so we can address it immediately. 

I want to thank all the witnesses for being here today. I look forward to your comments, and I yield back, Mr. Chairman. 

Chairman COLLINS. Thank you Ranking Member Hahn. 

We are going to have votes probably at 10:30, 10:35. I think we 

are going to have plenty of time to get through the opening statements of our four witnesses at which time we will have to adjourn 

until after votes and then we will come back at that point in time 

and continue. So I just wanted to make that clear. 

Also, to explain the timing lights to our witnesses in front of you, 

you each have five minutes to deliver your testimony. The light will 

start out as a green light and with one minute remaining the light 

will turn yellow. And finally, it will turn red at the end of your five 

minutes. And if you could try to keep your time within that we 

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would appreciate that especially with our voting schedule coming 

up. 

Our first witness is William Dennis, Jr., who is a senior research 

fellow with the NFIB Research Foundation in Washington, D.C. I 

referred to some of the studies and reports in my opening comments. Mr. Dennis has directed the NFIB Research Foundation 

since 1976. Welcome, Mr. Dennis. You have five minutes to present 

your opening testimony. 

STATEMENTS OF WILLIAM DENNIS, JR., SENIOR RESEARCH 

FELLOW, NFIB RESEARCH FOUNDATION; RYAN P. THORN, 

RYAN P. THORN INSURANCE PLANNING; PAUL VAN DE 

WATER, SENOR FELLOW, CENTER ON BUDGET AND POLICY 

PRIORITIES; DEAN NORTON, PRESIDENT, NEW YORK FARM 

BUREAU 

STATEMENT OF WILLIAM DENNIS, JR. 

Mr. DENNIS. Thank you very much, Mr. Chairman. 

I am accompanied today by Michael Chow, who is a senior policy 

analyst with us who actually did the assimilation itself, so if we get 

too deep in the weeds I have my technical expert with me. 

I also am going to strike some of my initial comments since you 

very well described what we are talking about here and that kind 

of thing. But let me just summarize what the health insurance premium tax is. It has four characteristics. It is large, it is highly inequitable, it is nontransparent, and it cascades. And so in effect 

what it does is raises the costs for smaller businesses, it worsens 

our competitive position, and ultimately it gives those small business owners without health insurance another reason for not providing it to their employees. 

The simulation which we have attempts to determine the economic impact. We used a BSIM module of something called a 

REMI model. Now, the REMI model is a very standard common 

model used by many folks. To give an example, we not only use it 

but the AARP, NEA does. MIT has been a client for a while. University of Michigan. The Democratic Policy on the Senate side has 

been, so it is a generally well recognized model. 

As we proceeded with it there are lots of moving parts when you 

try and estimate things like this, and what we attempted to do 

with these moving parts is to, as much as possible, be conservative 

in their use. By conservative in this case I simply mean that we 

try to minimize any potential extremities that would and use conservative assumptions. For example, we assume that there would 

be constant employer offerings, that they would not change. That 

is an arguable thing but that seems to be the most reasonable 

thing we have. And there are other similar types of things such as 

the constant distribution of insurance types—same number of family policies, same number of individual policies, plus one policies, 

and so forth. 

An initial question was what will the tax rate actually be since 

it was not initially put into the law as any particular rate, and we 

did not feel we had the expertise so we relied on two sources to 

come up with our estimates. We used the Joint Tax Committee and 

we used Doug Holtz-Eakin’s estimate. And, of course, he is the 

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5 

former chairman of the Congressional Budget Office. I will get that 

right yet. And so we used 2.5 and 3 percent and simulated both of 

those. We also used different rates of premium inflation because 

that is a matter of dispute. No one knows quite what that is going 

to be as time goes on. Some are arguing it will be relatively low. 

Some are arguing it will be relatively high. So we use basically 5 

percent annual increase to 10 percent annual increase with increments in between. 

These results yielded a total estimate of 146,000 to 262,000 lost 

jobs, 59 percent of which would be in small business. It is also a 

cumulative loss of up to $184 billion in lost output. So it is a significant impact. Some would argue it could be bigger but it certainly is bigger, and the number that I have just given you include 

all the feedback that comes from the reinvestment of the money. 

So in effect, we have also included not only the jobs lost but the 

jobs that would be gained through health and things of that nature. 

So in sum, what we are doing is we are collecting and spending 

$100 billion of a highly inequitable tax to yield essentially a quarter of a million lost jobs and, what, $175 billion to $200 billion in 

lost GDP over a decade. 

Thank you, Mr. Chairman. I would be happy to answer any questions you may have. 

Chairman COLLINS. Thank you, Mr. Dennis. 

At this point I would like to yield to Representative Matheson, 

who will introduce our next witness. 

Mr. MATHESON. Well, thank you, Chairman Collins. Thank you 

for holding this hearing. It is particularly important for small business because, as you know, this premium tax applies to fully-insured plans. It does not apply to self-insured, which are more large 

corporations. So I am glad I am holding this hearing, and you mentioned my role with Mr. Boustany on the legislation to repeal this 

particular tax. My purpose in being here today is to introduce a 

good friend and a constituent of mine, and someone whose family 

has known mine for a number of years. Ryan Thorn is a health underwriter from South Jordan, Utah. And there he has serviced 

Utah small employers for over 30 years, and he is a small business 

owner himself. He served in various capacities with the National 

Association of Health Underwriters and he is currently a vice president of that organization. It is fair to say that Ryan has a great 

understanding of the small business marketplace and the mechanisms at play that affect business costs, and I think his testimony 

and answers should be very important for this committee to hear 

as this is someone who is balancing the books for his own small 

business and he is also providing health insurance and consultation 

to other small businesses as well. I have always found him to be 

a very forthright individual who has provided me with good information over the years to help me understand the issues. I am 

pleased he is here today to testify before this Committee. And I will 

yield back my time. 

Chairman COLLINS. Mr. Thorn, if you could deliver your opening remarks. 

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STATEMENT OF RYAN P. THORN 

Mr. THORN. Thank you, and good morning. 

My name is Ryan Thorn. As mentioned, I do own an insurance 

agency in South Jordan, Utah. I am self-employed with one parttime employee. I am here on behalf of the National Association of 

Health Underwriters or NAHU. 

I have been involved with NAHU since 1993 and currently serve 

on the national board. I help my clients purchase health insurance 

coverage and service their benefits all year long. Almost all of my 

clients are self-employed or have less than 25 employees. 

I would like to thank the House Small Business Committee for 

inviting me here today and for my congressman representative Jim 

Matheson, and also my senator, Orrin Hatch as they have both 

sponsored bills to repeal the annual fee on health insurance premiums included in this law which will have serious financial consequences for Utah businesses and consumers. While technically 

paid by the carriers that issue individual and fully-insured coverage from 2014 on, Utah insurers have confirmed back to me that 

the tax will be passed down to consumers. The direct impact on 

premiums will be staggering. 

I have included Utah’s data in my written testimony to each of 

you, but in short, it averages out to be about $500 per year for families and $200 a year for individuals. It disproportionately hits individuals and small business owners, the people who have been hurt 

most by these challenging times, and this tax never goes away. 

Among my clients, the cost of health insurance is a huge concern. 

In preparation for today, I contacted several of them to share their 

thoughts. One longtime client wrote, ‘‘We have always tried to take 

care of our employees but it is becoming impossible at this rate.’’ 

Another explained, ‘‘We currently pay 75 percent of insurance premiums for all of our employees and their families. We have historically provided this degree of benefits because of our strong commitment to our most valuable asset, our employees. Frankly, 

ObamaCare’s multiple hidden taxes, such as the HIT, scares the 

daylights out of us and threatens not only our ability to provide 

adequate insurance coverage for our employees and families but 

also the very existence of our company.’’ 

The bottom line, the ACA and its national health insurance sales 

tax is causing tremendous anxiety for American employees. One of 

my clients said, ‘‘Freedom brings happiness. I just do not find happiness anymore from what the government is doing to me.’’ 

This tax has no purpose but to increase federal revenues. It does 

not make the markets work better or target poor behavior choice, 

such as smoking. It is a huge expense for individuals and small 

businesses, larger than the device and pharmaceutical taxes combined. 

The members of NIHU and I believe it is inherently unfair to finance health care reform by taxing people who are doing the right 

thing by buying private coverage. I have made my living for nearly 

30 years helping people buy private health insurance, so I know 

when prices go up people buy less or simply forego coverage altogether. I am afraid this tax and other cost drivers will incentivize 

the younger and healthier people not to buy coverage until they 

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need medical care. The resulting adverse selection will make the 

cost of health insurance even higher for everyone. 

The impact of jobs will be huge. Another client said, ‘‘The activation of this law and tax will likely prevent me from hiring new employees.’’ Besides not hiring, employers will change jobs from fulltime to part-time status since most part-timers are not offered benefits. Of course, this is to the detriment of the employees whose 

hours will be cut. We are simply going in the wrong direction. 

Finally, on a personal note, my wife Robin, and I spend just under $500 a month on our $4,000 deductible family HAS policy, 

which is a significant expense. Due to other ACA pricing changes, 

premiums will be going up an average of 28 percent next year for 

Utah families like mine. That is on top of the HIT tax and other 

fees. Factor in the law’s MLR requirements, which by the way decreased my personal business income by 30 percent. It is hard to 

call this law the Affordable Care Act, at least in the Thorn family. 

I consider it an honor to have been invited to share these 

thoughts with Congress today and the impact this HIT tax will 

have on small businesses and individuals. Thank you very much. 

Chairman COLLINS. Thank you, Mr. Thorn. 

I would now like to yield to Ranking Member Hahn for the introduction of our next witness. 

Ms. HAHN. Thank you, Mr. Chairman. 

It is my pleasure to now introduce Mr. Paul Van de Water. Mr. 

Van de Water is a senior fellow at the Center on Budget and Policy 

Priorities where he specializes in Medicare, Social Security, and 

health coverage issues. Previously, he worked at the Congressional 

Budget Office for over 18 years. Welcome, Mr. Van de Water. 

STATEMENT OF PAUL VAN DE WATER 

Mr. VAN DE WATER. Thank you, Ms. Hahn, for that kind introduction. And Mr. Chairman, I am pleased to be here with all of you 

this morning. 

The Affordable Care Act will extend health insurance coverage to 

27 million people and help ensure that Americans have access to 

affordable coverage. And it will do so in a fiscally responsible way. 

In fact, the congressional budget estimates that health reform will 

reduce the deficit modestly in its first 10 years but substantially 

in the following decade. 

To pay for this expansion of health coverage, the ACA levies 

taxes on or reduces Medicare payments to businesses and industries that will directly benefit from health reform. The fee on 

health insurance providers, also known as the Health Insurance 

Tax falls into this category. The fee does not apply to large employers that self-insure, those that pay the cost of their own employees 

rather than purchase insurance in the commercial market. This is 

reasonable since most large employers already offer health insurance and will be largely unaffected by health reform. 

As with any excise tax, supply and demand will determine how 

the tax’s burden is ultimately split between providers and purchasers. Insurance companies have recently turned in very strong 

financial results and thus are well positioned to bear some of the 

tax, but a portion of the tax is likely to be passed on to consumers. 

The Joint Committee on Taxation, as I think another witness has 

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mentioned, estimates the premium subject to the fee will be 2 to 

2-1/2 percent higher than they otherwise would be. 

But that is only part of the story. As Congresswoman Hahn mentioned in her opening statement, health reform also contains many 

provisions that will slow the growth of premiums. The new health 

insurance exchanges will increase competition among plans and 

create economies of scale. Standardization of benefits and prohibition of medical underwriting will reduce administrative costs. The 

individual mandate will help bring more healthy young workers 

into the insurance pool. Premium increases of 10 percent or more 

are subject to state or federal review, and insurers must provide rebates to their customers if they spent less than 80 percent of premiums on medical care. The ACA also includes a large number of 

initiatives to identify and implement more efficient ways of delivering medical care services. 

All things considered, the Congressional Budget Office estimates 

that health reform will slightly reduce premiums for employer 

sponsored health insurance in the near term. For employers with 

more than 5 workers, CBO estimates that the law will reduce average premiums by up to 3 percent in 2016 compared to what they 

otherwise would be. For small employers, the estimated change in 

premiums ranges from an increase of 1 percent to a reduction of 

2 percent. And for workers and firms that can benefit from the 

ACA’s tax credit for small employers the cost of insurance will drop 

by 8 to 11 percent. 

Now, claims that the Health Insurance Tax in particular or 

health reform in general will kill jobs are unfounded. The Congressional Budget Office foresees only a small net reduction in labor 

supply, primarily because some people who now work mainly to obtain health insurance will choose to retire earlier or work somewhat less, not because employers will eliminate jobs. And if you 

would like in questioning I would be happy to indicate why I think 

the problems are with the study from the NFIB. 

In conclusion, the Health Insurance Tax forms part of a carefully 

thought out structure to expand health insurance coverage and 

slow the growth of health care costs without adding to the budget 

deficit. Any effort to modify or repeal this tax must not undercut 

any of these three crucial objectives. 

Thank you, Mr. Chairman. 

Chairman COLLINS. Thank you, Dr. Van de Water. 

Our final witness is Dean Norton, who is president of the New 

York Farm Bureau. Mr. Norton is a senior agricultural consultant 

with Freed Maxick and Battaglia, a local CPA firm in the Buffalo, 

New York-Western New York area. He is a constituent of New 

York’s 27th Congressional District, which I am honored to represent, and his family owns a dairy farm in Elba, New York. He 

is testifying today on behalf of the New York Farm Bureau. 

Welcome, Mr. Norton. You have five minutes to present your testimony. 

STATEMENT OF DEAN NORTON 

Mr. NORTON. Thank you, Mr. Chairman. 

I appreciate the opportunity to appear before you today on what 

is a serious concern for my farm, my neighbors’ farms, and those 

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all across this great country. The HIT tax ultimately will hit me 

and my employees and our wallets and shrink the health care coverage my family’s farm is able to provide. 

I am the fifth generation of Nortons to farm on the same plot of 

land in Elba, New York, dating back to 1906 and my Great Great 

Great Grandfather Bloon. Oak Orchard Dairy encompasses 1,000 

acres of cropland and we milk about 900 cows a day. We also have 

a custom trucking operation for forage and commodity harvesting, 

and my wife Melanie and I operate DMCK Cattle Company, which 

leases cows back to neighboring dairies. In addition, it has been my 

privilege, as has been mentioned, to serve as the president of the 

New York Farm Bureau for the last four years, and I also serve 

on the American Farm Bureau Board of Directors. 

A recent Congressional Budget Office report confirms that the 

HIT tax would be largely passed through to the consumers in the 

form of higher premiums for private coverage. My family’s farm 

and countless other small businesses will bear the brunt as consumers. Small businesses are the backbone of the American economy. Farmers are small businesses, and many of us offer health 

care coverage for our employees. Most farmers and other small 

businesses do not self-insure because we do not have a large 

enough pool of employees. Instead, small family farms, like myself, 

purchase health insurance on the fully-insured market which the 

HIT tax is levied on. And that is why we are going to feel the full 

force of the HIT tax as the health insurers pass on the cost to family farms. It is expected to cost, as has been mentioned, $100 billion 

over the next 10 years. That translates to $400 more per family per 

year. That is a hit that many families cannot afford. You are talking about money that could buy a month’s worth of groceries. And 

do not forget, those of us in rural areas already pay a disproportionate share of health care costs than those who live in urban 

areas. 

Keep in mind these costs are only going to make it tougher for 

our farm to operate. Dairy farming by nature is highly unpredictable. We have no control over the price of milk, which varies greatly from year to year. Also, the price of feed for our cows and fuel 

has been rising rapidly, as have the farm’s health costs. Health 

care costs for small businesses have doubled since 2000. Imagine 

trying to budget with all those uncertainties every year. 

In order to keep up with the rising expenses of employer provided health insurance, we have been forced to trim costs. It was 

necessary for the farm to significantly change the cost structure of 

our insurance plan. We have turned to a highly deductible policy 

that only covers 50 percent of the insurance costs at this time. We 

used to cover 90 percent. In turn, our employees now have to contribute a larger portion of their income when they seek medical attention. I think we could all agree that this could be a disincentive 

for people to seek care in some instances. To compound the problem, we now only cover half of our employees than we once did, and 

keep in mind this was all before the HIT tax. Now we have to reevaluate our health insurance coverage again. 

Do we want to offer less health care coverage? Absolutely not. 

Health insurance is a benefit that we need to attract high quality, 

dependable workers. Milking cows is a 7 day a week business, 365 

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days a year. Without our hardworking employees we would have no 

family farm. 

For our trucking business, it runs through our very short harvest 

season where missing out on a single day can be the difference between profit and loss. It is very important we are able to offer reasonable health insurance if we are to obtain the workers we need 

to stay in business. Just as important, it is good for our employees, 

their families, and our communities that we keep them healthy. 

The HIT tax will hurt the very people that it was intended to help. 

It means that it will be harder to afford health care for my family, 

my employees, and for farms across this country. 

In conclusion, I would encourage all members of the House Small 

Business Committee to be sponsors of the bipartisan bill HR 763, 

introduced by Representative Boustany from Louisiana and Representative Matheson from Utah. This bill will repeal the annual 

fee on health insurance providers that was enacted by the Affordable Care Act. 

I appreciate the opportunity to share my story, and I look forward to your questions. 

Chairman COLLINS. Thank you, Mr. Norton. 

We will start the questions as we watch the clock to see when 

we may be called out to vote. I think from hearing the opening testimony, a good opening debate comment might be concerning 

whether or not insurance companies will in fact attract so many 

more customers if their profits will skyrocket to the point they do 

not have to pass much of any of this tax onto the consumers. I understand and paraphrase Dr. Van de Water’s comments that this 

was one of the reasons that this tax is levied on the product offerings that most small businesses offer because, in fact, they will get 

so many new customers, they will make money, and they will be 

able to absorb a large part of this. 

So maybe I would ask each of you to comment, because I know 

my own observations are—especially concerning the young and the 

healthy now that the companies cannot charge more than 9-1/2 

percent of their W-2 wages, and Mr. Thorn, you might comment on 

the fact there is no longer just a pure single policy. Those policies 

have to include the dependents of the families. We used to have 

single family; now we have got single plus dependents, which is a 

more costly policy, and then the spouse will come on board. So you 

might speak to that. 

My concern is just the opposite. There will be fewer and fewer 

policies. The young and the healthy will, in fact, understand that 

they can drop health insurance all together because there is no 

penalty for preexisting conditions. Why would they have health insurance at all? And also, companies are likely, as I talk to them, 

take employees, drop them to part-time so they will not get insurance which certainly will mean fewer policies. Then lastly, the cost 

of a penalty at $2,000 is less than most companies pay for insurance and you might see a significant number of companies dropping health insurance, which actually would reduce the number of 

customers, not increase them as Dr. Van de Water testified. 

All four of you in good open debate, that is why we are here. If 

you can comment on some of those. Start with Mr. Dennis. 

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Mr. DENNIS. First of all, I think a lot of us are operating on a 

good deal of speculation quite frankly because what we have seen 

as time goes on is we keep asking small business people what they 

are going to do, so on and so forth. A lot of them really do not know 

what is going on. But those that we engage and talk to tell us indeed that of those that do not have it, they are less likely to have 

it. Those that do are casting about for ways to get out from underneath a lot of this. Most of them do not want to get rid of their 

health insurance, but I think over the longer period, come push to 

shove it is our judgment that in all probability will decline. How 

much? I do not know. 

Chairman COLLINS. Thank you, Mr. Dennis. 

Mr. Thorn, as someone who is selling these policies, we would be 

interested in your comments. 

Mr. THORN. It is interesting as I meet with clients every day 

and the underlying concern is the uncertainty as was just mentioned. They are literally scared to death as to the unknown. They 

are trying to do the right thing for their employees but they are 

looking at this huge expense growing with margins are already so 

thin. Bring on another 500 bucks HIT tax. Sure, I would love to. 

It just is not going to happen. And I think part of the problem, and 

as I talk to the carriers in my state anyway, they did indicate it 

will be passed on to the consumer, to the small employer owner. 

And so I think we have a trickledown effect. So if that tax is passed 

down to the consumer and all of a sudden we have got more people 

opting out because I cannot afford this anymore; that 500 bucks 

just put me over the edge, you are going to have less revenues coming in to the insurance carriers. So that is going to be a trickle 

down problem. 

I also see from my own experience you have got a lot of small 

businesses who are looking at cutting hours, the opposite of what 

they really want to do. And instead of being able to support a fulltime family and give them a good, decent wage, in order to fit their 

own budgets they are going to have to cut their own hours down. 

So that is going in the wrong direction as well. 

Chairman COLLINS. I share the concerns. 

Dr. Van de water, if you could comment. 

Mr. VAN DE WATER. Certainly. As I said, Mr. Chairman, I 

think there does seem to be a consensus among economic analysts 

that at least some of this tax will end up being passed forward to 

consumers. The Joint Committee on Taxation, whom I cited, which 

is Congress’s nonpartisan staff agency, has estimated an increase 

of about 2 to 2-1/2 percent in premiums if one were to look at the 

effect of this tax by itself. So that I think we can take pretty much 

as a given. But the point is there is a whole heck of a lot of stuff 

going on as well. 

I was really taken by Mr. Norton’s comment that his insurance 

costs had doubled I think you said over the past 10 years or so. 

That is a huge increase. In relation to that, a 2 percent tax is pretty small and can easily be swamped by these other factors in the 

Affordable Care Act that I mentioned and that Ms. Hahn referred 

to. 

As far as whether insurance companies are going to get more 

business, I think there is virtually no doubt that they are going to 

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get substantially more business, again relying on Congressional 

Budget Office estimates you see huge increases. And again, knowing I was going to have a fellow witness from New York. I just 

came across a study yesterday from the state of New York about 

the growth of the small group and the nongroup market in New 

York, and this was done by I think the consulting firm of Deloitte. 

They estimate a huge increase in nongroup insurance in New York 

of over tenfold and a modest increase, but an increase nonetheless, 

in small group coverage. So again, I think that the consensus there 

is overall there will be a very substantial increase in insurance coverage and in business for commercial insurers. 

Chairman COLLINS. Thank you, Dr. Van de Water. 

Mr. Norton. 

Mr. NORTON. It has been my experience in the agriculture industry that any time a regulation or a mandate has been passed 

down to our suppliers or vendors that eventually I am the one paying for that tax or regulation, so I would say that there is probably 

a good chance that yes, we will be doing this. 

We were all talking about the uncertainty. I would just mention 

that I know of at least two farmers—Mr. Chairman, your district, 

because of the uncertainty of immigration reform, because of the 

uncertainty of the Affordable Care Act, the HIT tax and what does 

it mean to their business—they have taken I would consider drastic 

steps, and they have moved away from being specialty crop growers—and by specialty crops I mean fruits and vegetables, like cabbage, cucumbers, apples, and whatnot, and they have made the decision that this year they are going to move away from growing 

those type of highly labor intensive crops because of the uncertainty with all these rules and regulations and immigration reform, 

and they are going to go to a mechanized type of agriculture or 

corn, soybeans, something that can be planted and harvested with 

machines. And to me that is a loss not only to that farm but you 

are talking 30 employees that will not be employed by a farm. You 

are talking about thousands and thousands of dollars that are not 

going to be in the community anymore. So to me this uncertainty 

is already having a drastic effect on what is happening in the agricultural community. 

Chairman COLLINS. Thank you, Mr. Norton. 

Again, one of the reasons for the hearing is to talk about what 

might happen. Again, none of us know for sure and that is why I 

think the public deserves and we are having this hearing today to 

hear various potential outcomes. 

With that I would like to yield to Ranking Member Hahn for her 

opening questions. 

Ms. HAHN. Thank you. Again, this is an important hearing so 

that we can really analyze what some of the impacts are of the Affordable Care Act. 

I will say I have been having in my district workshops with my 

small businesses specifically on ACA because there is so much misunderstanding out there. And frankly, I would dare say there are 

outright lies being put out there in some of the media outlets about 

really what this means. So I have been holding workshops so that 

we can walk small businesses through what this means. 

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Now, in California, we are ahead of the game because we are 

ready for the exchanges. We are on top of it, and we think it is 

going to be valuable and beneficial to small businesses. And let us 

remember less than 1 percent of small businesses will be under the 

mandate of the Affordable Care Act to provide health insurance. 

But that does not change those of you who want to provide health 

insurance, which I applaud, and then what this new tax will mean 

in terms of higher premiums. 

What I want to do, Mr. Van de Water, and Mr. Dennis, is maybe 

talk about that huge disparity that both of you talked about in 

terms of job losses as a result of this—I do not know if it was the 

result of ACA or result of just this tax. I want to hear that. 

And by the way, when we are talking about job losses, we have 

been told that sequestration will result in 750,000 job losses. So 

around here there are some decisions that have been made that 

have resulted in job losses. So on top of that I am real interested 

to know what the big disparity is on the number of jobs you think 

will be lost as a result of this. 

Mr. Van de Water, you kind of said you would be willing to explain it. 

Mr. VAN DE WATER. Sure. 

As I indicated, the Congressional Budget Office has taken a look 

at the overall effect of the Affordable Care Act and has concluded 

that the effect on employment overall would be negligible. And in 

fact, to the extent that there is any effect at all it will result from 

the fact that some people who are in effect hanging on to jobs in 

their older years simply to hang on to health insurance coverage 

would be able to retire earlier, spend more time with their grandchildren, whatever, because they would have alternative sources of 

health coverage available that were not tied to their employment. 

Now, with regard to the NFIB study, the model that they use is 

very complicated and I cannot say that I can follow all of the moving parts, but I have a couple of suspicions of what is going on 

here. 

First of all, although Mr. Dennis talks about the proceeds of the 

tax being reinvested, it is not entirely clear to me that the model 

is taking into account or the assumptions that were input into the 

model are taking into account all of the spending that results from 

the tax because of the extent that there is money that is being collected through the tax but being spent yet get ignored in the model. 

You could end up with job loss because of that. 

I am also concerned about what the model may be assuming with 

respect to the effect of premiums on wages. Again, as an economist 

I would believe that to the extent that people get health insurance 

coverage, that is part of their compensation package. It is compensation just like wages. And to the extent that employers are 

paying more compensation in the form of health insurance over the 

not too many years that people end up with less cast compensation. 

So to the extent that compensation is unaffected by the cost of 

health insurance as I think it would be, it is very hard for me to 

see why this particular model should produce anything in the way 

of job loss. 

Ms. HAHN. Thank you. 

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It is an interesting angle to talk about the people who really only 

have jobs for the health insurance as being one angle. I had one 

friend who got married to the wrong person just so she could have 

health insurance. We will also have a lot of less bad marriages as 

a result of this. 

Mr. Dennis, explain—— 

Mr. DENNIS. We did not model the bad marriages. I am sorry. 

The first thing on the spending item. Yes, it all is required by 

the way the thing is constructed that you have to put it all back 

in. You have to put it back in in the industries in which it is presumed it will go into. So we assumed that this would be spent for 

the most part on the health care with a little bit on insurance I 

believe was the way we put it together. So that answer is yeah, 

there is all spending. 

The second thing is the idea of passers of these things in terms 

of lower compensation. And so in effect we get a net wash on that. 

And there is some truth in that. Again, I cannot do all the technical equations and all that sort of thing they got in there either, 

but I think there is an allowance for that. And some of it goes 

through and some of it does not. 

Ms. HAHN. Thank you. 

Chairman COLLINS. Thank you. 

At this point, I yield to Representative Huelskamp for five minutes. 

Mr. HUELSKAMP. Thank you, Mr. Chairman. 

I did not know we would get to questions before we went to vote 

but I appreciate the opportunity. 

Gentlemen, thank you for being here. I appreciate the opportunity to visit with you. 

First, I want to read a constituent’s e-mail I have received and 

ask you a few questions about that. 

‘‘Dear Tim or Dear Congressman, I appreciate all your efforts 

against the Health Care Plan and now more so than ever. I want 

to tell you my story in case any personal stories will help you in 

your fight against that horrible law.’’ 

And this is from Kathy. 

‘‘I was recently notified by my insurance company that they will 

be closing their doors, going out of business, on December 31st of 

this year due to the ObamaCare sledge hammer that will be coming down on everyone as of January 1, 2014. Not only am I losing 

my and my children’s insurance coverage, I am losing people who 

have become my friends.’’ And then she describes this insurance 

company was with the family throughout a loss of her husband 

through cancer, and this is not just one letter we received; this is 

something I received from many folks. 

She was happy with her health insurance coverage and she has 

lost that. We talk about the facts and figures that are in here. One 

thing you cannot change are these stories of folks that like their 

health care plan. The Congressional Budget Office estimates that 

7 million Americans will lose their employer-based health care coverage. Apparently, even if they liked it they do not get to keep it. 

Seven million. And that is the impact of what happens here. 

One thing I want to ask a question is this $100 billion tax increase which I am cited onto the bill to do away with that, I think 

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the doctor here is supportive of that. I would guess the other three 

are not, but Doctor, the question I have, the $116 billion tax increase, you support that. Do you think that was not high enough 

or just about right? Because you are under the impression that this 

tax increase is good for the economy, good for the health care sector. I want you to describe the reasons for your support of that and 

what it means for Americans. 

Mr. VAN DE WATER. The importance of the Health Insurance 

Tax is as one of the ways of paying for the expansion of coverage 

in health reform. I personally think that it is a very important benefit. It is a very exciting development that all Americans going forward will have access to health insurance coverage regardless of 

their health status, regardless of their employment status. I, for 

one, think that I want my children to have access to health insurance. I suspect that all of us want our children and friends to have 

access to health insurance, and I think the Affordable Care Act will 

do that. And that is why we have this tax along with the others 

in health reform, not because we like any one tax in particular. No 

one likes taxes per se. We raise taxes to raise revenues to pay for 

things that we want to pay for, and in this case we are paying for 

an expansion of health insurance coverage to 27 million Americans. 

Would there be alternative ways of raising that revenue? Of course 

there would. And if the Congress can come up with an alternative, 

so be it. 

Mr. HUELSKAMP. But what do I tell Kathy who lost the plan 

she liked, Doctor? It was taken away from her. She had a decade 

long relationship with this company and it has worked well for her, 

and you have come in here with this law—not you—the Congress 

and the president—and said, ‘‘Sorry, that is no longer a choice you 

have any more.’’ And she is very upset about it. What do I tell her? 

Mr. VAN DE WATER. Well, there is no evidence that what has 

happened to this company is as a result of this particular tax. 

Mr. HUELSKAMP. The law is the impact that caused this. I 

mean, you can argue with Kathy and argue with her experience 

with her insurance company, but the impact of this law is the company she liked, as well as 7 million other Americans have health 

insurance and they are going to lose that and have to go into a 

plan they do not like. I mean, what am I supposed to tell those 

folks? Just say, ‘‘Hey, it is a great thing. Enjoy paying the tax but 

you do not get to keep the health insurance as promised.’’ 

Mr. VAN DE WATER. I think the health reform law has become 

a convenient excuse for people to use. We do not know that this 

company is going out of business because of the health reform law. 

Companies of small businesses we know—— 

Mr. HUELSKAMP. Well, I am not going to argue with Kathy 

who lost her health insurance coverage in making this claim, her 

insurance. She was happy with it. This company is going out of 

business. Again, what is the statement to that? 

Mr. VAN DE WATER. Not necessarily because of health reform. 

We do not know that. 

Mr. HUELSKAMP. Well, one thing you do not know, Doctor, is 

the fact that I will note here you used data from 2009 to make your 

claims. CBO has updated much of this data in here. The 7 million—do you not agree with the CBO that 7 million Americans are 

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going to lose their employer-based health care coverage? Do you 

disagree with that? 

Mr. VAN DE WATER. Some people will cease to have—— 

Mr. HUELSKAMP. Do you disagree with up to 7 million Americans? This is coming out of the CBO. 

Mr. VAN DE WATER. I do not remember offhand if that is the 

right number. 

Mr. HUELSKAMP. Well, you might look up the latest reports because one point in here—and I am sorry, Mr. Chairman, but when 

you come here and you use something from 2009 and say this is— 

the year before this passed, 2009—— 

Mr. VAN DE WATER. Which particular citation are you concerned about, sir? 

Mr. HUELSKAMP. Well, you have the citation, sir. It is in your 

report. And you talk about the impact of the—— 

Mr. VAN DE WATER. The citation is still accurate. 

Mr. HUELSKAMP.—impact of this health insurance—— 

Mr. VAN DE WATER. Nothing I have said is based on CBO 2009 

has changed in CBO’s view that I know of. 

Mr. HUELSKAMP. I will be happy to share that with you, sir. 

The CBO has changed. They now estimate that the cost has doubled. That is the estimate of CBO. And the 7 million lost—7 million 

figure is not new. I mean, this was a few months out here. 

So I just say there is some information out there. I would appreciate if you would share the most up-to-date information in the 

CBO. 

Mr. VAN DE WATER. The 27 million figure I used is the most 

recent number. 

Mr. HUELSKAMP. Well, how many will still be uninsured when 

this is fully implemented? About the same percentage that were 

uninsured before we started this. 

I yield back my time. 

Mr. VAN DE WATER. Absolutely not. 

Chairman COLLINS. Thank you, Mr. Huelskamp. 

Voting has been called but we do have a few more minutes. So 

in the interest of maybe cutting it a little close, I would like to 

yield to Mr. Schneider for his questions. 

Mr. SCHNEIDER. And I will be brief. 

I spent the bulk of my career working with small businesses. I 

owned businesses from 1997 to 2003. I owned a small insurance 

agency, and I know from my experience both personally and many 

of my clients, the bane of looking to the future is uncertainty. As 

you talked about the uncertainty, it makes it very difficult. 

But I also know from my experience and the experience of my 

clients that we were seeing double digit increases in health insurance premiums going back, and as we were making choices that 

was one, in my own case with my partner, that was one of our 

greatest uncertainties every year is what was going to be the insurance in health insurance. And for a small business we had our 

peak 10 employees. That was a very difficult challenge. 

So as you look at uncertainty as we go forward, what do you see? 

We need to get through to the other side of the complexity of health 

care but to provide a greater certainty once we get there, once people know what they are doing, do you think people will start hiring 

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again? Do you think we will start moving in the right direction 

again? What is the impact long term that concerns you? 

Mr. DENNIS. Well, are you talking about uncertainty in the abstract or with regard to the particular thing we are talking about 

here, health care? 

Mr. SCHNEIDER. Well, certainly, the abstract makes it harder 

for businesses to plan in general, but specifically with health care, 

once we get it set they will know what they have to do. 

Mr. DENNIS. Well, clearly, uncertainty has been a major—what 

can I call it? Drawback or dampening. Had a dampening effect on 

small business employment. It probably also has had a dampening 

effect on entry, too, although we cannot prove that nearly as much. 

Longer term one has to assume that if you reduce that uncertainty, and it will take a lot to do that, that indeed employment 

will be much more likely to stabilize in the sector. Small businesses 

still struggling and a good bit of it is that rather than hiring in anticipation, you know, expecting certain positive things to happen 

and therefore I am going to hire, it is almost the reverse happening. You have to force them to hire. In other words, things have 

to be so tight that that is the only way you are going to hire. And 

that is the feedback we have been getting for a long time now and 

it seems to continue. All survey stuff would also show that uncertainty is a huge factor. 

Mr. SCHNEIDER. Do you get a sense—and I will close with this 

question—do you get any sense in your surveys that small business 

employers with access to exchanges, with access to a more stable 

market, will feel that they have the opportunity to hire more people down the road? 

Mr. DENNIS. We do not have any survey data on that one way 

or another. We hope to begin to start collecting some of it soon. 

And to be able to give you a better answer on that. Let me put it 

that way. 

Mr. SCHNEIDER. I yield my time. 

Chairman COLLINS. Thank you. In the interest of continuing to 

cut it close, I yield to Mr. Luetkemeyer for his questions. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

With regards to the exchanges, Mr. Dennis, the president has already waived off the competitive part of that for another year or 

two; is that not correct? 

Mr. DENNIS. Yes. 

Mr. LUETKEMEYER. Can you explain a little about that? 

Mr. DENNIS. You mean that there will only be one plan? 

Mr. LUETKEMEYER. Right. Right. 

Mr. DENNIS. There will be one rather than three. 

Mr. LUETKEMEYER. So as a result of that where is the competition that is supposed to be driving down price? 

Mr. DENNIS. Well, you would not necessarily have to get your 

insurance through the exchange. I mean, you could, but you do not 

necessarily have to. So presumably there will be other plans. 

Mr. LUETKEMEYER. What kind of effect is that going to have 

on the small business folks trying to find insurance? 

Mr. DENNIS. Well, it will be, I mean, they will have fewer opportunities than they would have in the past. 

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Mr. LUETKEMEYER. What does that usually mean you have 

fewer opportunities? 

Mr. DENNIS. More expense and—— 

Mr. LUETKEMEYER. More expense. 

Mr. DENNIS.—less quality. Let me put it that way. 

Mr. LUETKEMEYER. One of the things that I have talked with 

my small business folks at home is that whenever they are looking 

in the 40 to 150 range about how—with employees, how they are 

going to be able to afford this, they are looking to going to part 

time with some of these, going temps with some of these, even dividing their companies in two, two have two separate companies to 

try to slip underneath this. When these people go down to 28 hours 

or 30 hours or whatever it is, those people are going to find insurance on their own; is that not correct? 

Mr. DENNIS. Yeah. 

Mr. LUETKEMEYER. Okay. If you are a young person that is 

being laid off and you are healthy, Mr. Thorn, what is your experience with young people who have to make a choice between paying 

rent, making a house payment, making car payments, paying the 

rest of their insurance, and now they have to figure out how they 

are going to afford health insurance on a reduced budget; what is 

your experience with that? 

Mr. THORN. Or go on a date. 

Mr. LUETKEMEYER. Or go on a date. 

Mr. THORN. And the young, healthy immortals we call them—— 

Mr. LUETKEMEYER. Maybe they will get married like Ms. 

Hahn’s friend. 

Mr. THORN. Let us hook them up. There you go. 

No, I think that is a very real concern. In our state of Utah we 

have had updates 26 for a long time, for a number of years. So part 

of the ACA, I think that is a good thing. I look at a lot of these 

young kids who are going to school. The last thing in the world 

they can afford is health insurance. To be able to stay on their 

mom and dad, that is a good thing. But for those young folks 

who—— 

Mr. LUETKEMEYER. Let us take a single parent with a child 

or two. You are 30, 30-some years old. You have got, you know, you 

are a wage earner. You can pick out whatever occupation you want 

to but you are a wage earner and so now you are a receptionist at 

your insurance agency, for instance, and suddenly you get your 

hours cut back and you have got two employees, let us say. And 

now you cut them both back to 28. You have part-time employees 

you do not have to supply their insurance for them. 

What happens—what is the economic effect when people have 

less money to spend, Mr. Dennis? 

Mr. DENNIS. Well, I mean, if you have less money to spend—— 

Mr. LUETKEMEYER. You do not purchase things; right? 

Mr. DENNIS. Well, yeah. And you are going to prioritize them. 

Let us put it that way. 

Mr. LUETKEMEYER. Okay. If you have less money—and if the 

insurance is taking more money out of your pocket and you have 

less money to spend, that is less money to spend on the rest of the 

economy; is it not? 

Mr. DENNIS. Well, someone has got it somewhere. I mean—— 

SBREP-219 with DISTILLER

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Mr. LUETKEMEYER. Well, the insurance companies are going 

to take it out and send it to the government. So the government 

has got it; right? 

Mr. DENNIS. Exactly. 

Mr. LUETKEMEYER. Okay. So where is the economic benefit of 

this? Is it going to be a plus or a minus? 

Mr. DENNIS. I am getting a little lost on some of this, I am 

sorry, sir. 

Mr. LUETKEMEYER. My basic, where I am headed with this is 

the insurance costs are sucking more money out of the economy. 

Mr. DENNIS. Right. 

Mr. LUETKEMEYER. There is less money for the individuals 

and businesses to spend. 

Mr. DENNIS. Right. 

Mr. LUETKEMEYER. And therefore, there is going to be less 

money spent in the economy. So the effect would be—— 

Mr. DENNIS. No, there will not be any less money spent. It will 

be who is spending it and what is it being spent on? 

Mr. LUETKEMEYER. Okay. Who can best spend a dollar—the 

government or private sector? Who can get a better return on it? 

Mr. DENNIS. I am very much biased towards the private sector. 

Mr. LUETKEMEYER. Thank you for your honesty, Mr. Dennis. 

I think that in the interest of time here I will stop there because 

we need to go vote, but again, I thank you each for being here 

today. I appreciate your willingness to spend some time with us 

and give us some real world examples of some of the effects of this 

tax on small business. Thank you. 

Chairman COLLINS. In the interest of getting out to vote we 

will adjourn this briefly until we are back. It could be 30 to 45 minutes. There are a few more questions and I think to get those on 

the record we will reconvene after voting. I thank you for your understanding and we will be back as soon as we vote. This meeting 

is temporarily adjourned. 

[Recess] 

Chairman COLLINS. I call the hearing back to order. And in the 

interest of time, I will certainly defer to Ranking Member Hahn for 

a couple of questions so she might catch her flight. 

Ms. HAHN. Thank you, Mr. Chairman. 

Mr. Van de Water, the ACA included provisions including rate 

review panels and the medical loss ratio requirements, both intended to protect consumers. Can you please explain the interaction between the Health Insurance Tax and consumer protection 

provisions like these? 

Mr. VAN DE WATER. Yes, thank you, Ms. Hahn. 

As discussed before, the medical loss ratio provision is designed 

to make sure that consumers basically get good value for their insurance premium dollars and this other requirement is dependent 

upon the details of the policy that either 80 or 85 percent of the 

premium be paid out ultimately in benefits. 

Now, my recollection is that this particular tax that we are discussing today, the Health Insurance Tax, is included for purposes 

of meeting the medical loss ratio so that to the extent that that is 

passed forward that the consumers still have to pay—can be forced 

to pay some of the Health Insurance Tax. That is that the medical 

SBREP-219 with DISTILLER

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loss ratio provision does not protect them from having part of this 

tax passed forward, but it will provide a lot of help to consumers 

generally. In fact, there are a lot of consumers who already receive 

rebates on account of the medical loss ratio provisions so that even 

though it does not protect them from the Health Insurance Tax in 

particular, it is a good protection generally speaking. 

Ms. HAHN. Thank you. Yeah, we actually had a witness here I 

think last month that actually talked about already having received $1,500 in a rebate check that she was saying really was 

helping to keep afloat her expenses at that time. So she was very 

happy to get that. 

Mr. VAN DE WATER. And, of course, there a lot of other provisions of health reform, which will be affecting premiums as well. 

During our intermission, Mr. Thorn and I were having a good chat 

and we were agreeing that in the long run the most important 

thing that needs to be done is to control the rate of growth of 

health care costs, and that is not something that is peculiar just 

to public programs like Medicare or Medicaid, but it applies obviously to private insurance, self-insured employers, small businesses 

that purchase commercial products, individuals, and of course, the 

ACA takes a number of steps that we hope are going to help slow 

the growth of health care costs in the long run, although we also 

know it is just the beginning and then more is going to have to be 

done. 

Ms. HAHN. So one of the things we have not talked about is the 

premium tax credits that ACA has included, which will provide assistance in buying health coverage. And these subsidies can actually lower health insurance costs for many people, and despite insurance companies recouping the Health Insurance Tax through 

higher premiums. Do you think it is possible that these premium 

credits will help keep premiums affordable for most people? 

Mr. VAN DE WATER. Well, for those companies, employees of 

those companies that can take advantage of them, yes. In my prepared statement I mentioned the CBO estimate that for employees 

of that sort and in terms that can take advantage of the credit, 

that the net reduction in premiums might be on the order—due to 

the affordable Care Act, overall might be on the order of 8 to 9 percent. Now, I think we all know, and I am sure your Committee is 

very well aware, that if cost considerations, the reach of those 

small employer credits is somewhat limited. They apply only to 

very small firms and to those with quite low wage levels. But for 

the firms that can take advantage of them they will be a big plus. 

Chairman COLLINS. I just have a few questions to finish up. I, 

again, thought we were only talking about the Medical Device Tax, 

but in fairness to all here I do subscribe to the Max Baucus definition of ObamaCare, calling it a ‘‘train wreck.’’ We will not know 

until January 1, 2014, but I am of the opinion, frankly, $100 billion 

here and $100 billion there and $40 billion here and $40 billion 

there actually is real money, even for the federal government. So 

$100 billion, the Health Insurance Tax. Another $100 billion on 

employer mandates. Another $40 billion. And we had testimony 

just a few weeks ago from Dr. Aiken who was saying if a small 

startup Medical Device Company is not profitable and they do not 

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make 2.3 percent of profit based on revenue they go out of business. All those jobs are lost. Stryker. A $100 million tax on medical device alone already has 

laid off 1,000 workers, cutting back on R&D. They are a public 

company. They need to protect their stock price and they cannot 

absorb or pass on a $100 million charge. So again, I would say with 

some bias I agree with Max Baucus. It is a train wreck. 

But a couple of questions maybe to finish up. Mr. Dennis, the 

NFIB is known for advocacy for small business. In fact, I am a 

member of the NFIB, in all fairness. Do you think—I think I know 

the answer—that the annual fee threatens small business expansion and job creation? Just interested in your opinion on that. 

Mr. DENNIS. Yeah. Surely. Whenever you get something like 

this, it is always something that you have to pay. And the more 

that you have to do, the less you are able to put in an investment 

somewhere else. I mean, it is a matter of choices. You either pay 

what you have to pay or do not, or you invest or do not. That is 

pretty simple and the question is just how much. 

Chairman COLLINS. Thank you. 

One other question for Mr. Dennis, and something that I am very 

concerned about. I believe in competition. I think competition 

works. I do not think the government should pick winners and losers, and I do not think the federal government should put small 

businesses at a disadvantage, whether it is currently today a higher tax rate, marginal tax rate for pass-through entities, than we 

have for big corporations. 39.6 percent for small business, 35 percent for big corporations. The first time I know of in history that 

small businesses are taxed at a higher rate. But I am more concerned about the fact that a lot of big corporations—most—are selfinsured. 

So my worry is on the competitive impact. A lot of small businesses, certainly they compete product line by product line with big 

corporations. They see a niche and they want to step in, but since 

big corporations are not subject to this tax if they are self-insured—so you could argue, and I think Dr. Van de Water even 

said—it may not have a lot of impact on some of these big corporations but this tax is placed on those group plans that small businesses subscribe to. So now this Health Insurance Tax, there is 

unanimous agreement, will be passed on in the form of higher premiums. It seems to me it is just one more competitive cost disadvantage that the government is deliberately passing on to small 

business which will have a chilling effect on competitiveness. So 

again, that is a statement, and I just would like your comments, 

Mr. Dennis. 

Mr. DENNIS. Well, no. I mean, I think that is one of the—if you 

look at the tax per se and forget the size of the tax and all this 

stuff, one of the most egregious things about this particular form 

of tax is that it is highly discriminatory. I cannot imagine being in 

similar context in this one because it is so egregious. And as a corollary, of course, it is a hidden tax. It is a nontransparent tax. And 

then thirdly, if you want to add that, it is a cascading tax. And that 

is it becomes a tax on a tax because it is rolled into the premiums. 

So in terms of just tax policy, I cannot think of a tax that is probably much worse than this. If you give me some time I might be 

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able to, but this kind of does a pretty good job of violating a lot 

of important principles. 

Chairman COLLINS. I think a prior witness would say that the 

Medical Device Tax is right up there with it. 

Mr. Thorn, now this is a little bit technical but, you know, in 

peeling back the numbers I would like to ask you, as I understand 

it this is an excise tax, so it is not tax deductible. If the insurance 

company has to provide call it a $1 fee to the government as an 

excise tax, that comes off of the bottom line of for-profit insurance 

companies. In order to get there it is not that they are going to be 

passing on a dollar; they have to pass on $1.50. So they are going 

to have to actually pass on to the consumers and small businesses 

a $1.50 increase in order to have a dollar left because the increase 

in the premiums is a taxable event. They are going to pay 50 cents 

in tax to the federal government, which is money going out. That 

then leaves them with a dollar. Then they send that dollar to the 

federal government as an after-tax excise tax. 

As an insurance broker I would ask, am I reading this correctly 

that a one dollar increase—one dollar health insurance tax equals 

potentially, certainly for the for-profit insurance companies, $1.50 

being passed on, so it is even worse. I just would ask your comment 

on that. 

Mr. THORN. Well, Mr. Chairman, you are absolutely right. The 

bigger issue, too, is the fact that you are going to see a lot of insurance companies who are creating or devising self-insured policies 

down to 5 to 10 lives, which is also a potential train wreck in and 

of itself to avoid this very tax. And I am hearing stories of that 

happening. So do we really want to go down that road as well? I 

think there are so many problems with this tax itself and it is disproportionately being affected by the small employer groups. If you 

are going to spread the tax it should be amongst everyone, not just 

a certain population. 

Chairman COLLINS. That is a concern I have. 

My last questions are for Mr. Norton. The Farm Bureau has a 

lot of issues. Just next week we are marking up the five-year Farm 

Bill that was deferred. It should have been done last Congress but 

that is another comment. You have a lot of issues—dairy issues, insurance issues, and so forth—and yet you are here today saying 

that one of the top issues for the Farm Bureau is, in fact, repealing 

the Health Insurance Tax. And I just would like your comment on 

how it is you have prioritized this given so many other issues. 

Mr. NORTON. Well, as you mentioned, we have a lot of issues, 

but this is front and center one of them because honestly, without 

some of the employees that we have to help us on our family farms 

and our family businesses, we would not be in business, and it is 

imperative for us to be able to take care of them and provide them 

health insurance. So the HIT tax as it is very well named, is going 

to affect us whether we are able to have employees, whether we are 

able to provide the health insurance that we want to to them, and 

whether some of our members might actually take the drastic decision to either get out of farming all together because of it or change 

their model. So our members felt very strongly about the Affordable Care Act. We have been opposed to its mandates from the beginning and this is one of the issues that we are here to work on. 

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Chairman COLLINS. And I am sure you deal with the other 

farm presidents around the country. Certainly, New York is New 

York, but could I get your comments on whether your counterparts 

across the United States share this same view? 

Mr. THORN. Well, I am one of 51, including Puerto Rico. And 

as you well know, we get together every year and have a meeting 

of delegates to decide our policy. And this was one of those issues 

that we discussed and decided in January and we all agreed that 

it is important that we take care of this issue and that we speak 

up about the cost that this mandate is having on us and what it 

is doing to our farms and possibly driving us off of our farms. 

Chairman COLLINS. And certainly, the Farm Bureau is a nonpartisan, bipartisan group. 

Mr. THORN. Yes. Nonpartisan, bipartisan. We work with both 

sides of the aisle. Just last week I was having a conversation with 

Senator Schumer on immigration reform, and I am very well aware 

that you and Senator Schumer are not on the same side of the 

aisle. 

Chairman COLLINS. Do you think? 

Anyway, I want to thank the witnesses, and Ms. Hahn, I do not 

know if you have a couple of follow-up questions. 

Ms. HAHN. Not so much follow-up but I just feel like I need to 

go on the record to say it is the insurance companies who, by the 

way, the last time I checked, were making huge profits. CEOs of 

insurance companies are making millions of dollars, and once 

again, we are letting the insurance companies run health care. I 

mean, that is why we have the Affordable Care Act because insurance companies in this country, instead of the doctors, were telling 

people what kind of procedures they could have. One of the reasons 

I ran for Congress was because one of my best friends died of 

breast cancer about 20 years ago because at that time bone marrow 

transplants were considered experimental and her HPO did not 

allow for a bone marrow transplant. And I thought you know what? 

I am going to run for Congress because I want to make sure that 

people do not go broke in this country because they have to decide 

between health care for their families or paying the bills. And the 

last time I checked, these medical device folks were also making 

huge profits. And by the way, this ACA is probably going to probably allow for more of these medical devices to be approved because 

of this insurance mandate. 

And with all due respect to the member who had his constituent 

Kathy—and I am sorry for Kathy that she lost her insurance— 

what insurance company is closing their doors when we are mandating in this country that everybody buys insurance. They must 

have a pretty bad business model. There is hardly any other product that we are mandating that people buy. Why an insurance company would close their doors when more people in this country are 

going to have to buy insurance, I do not know. 

I just feel like I need to go on the record to say once again we 

should be angry at insurance companies, not at this law. They are 

once again trying to hold people hostage and I just read where a 

CEO of one of these medical device companies was making $25 million as a bonus at the end of the year. So I am not feeling too bad 

for insurance companies right now or medical device companies. I 

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do want to listen to our small businesses, and I am going to continue to listen. If there are places in this law that we need to 

tweak and we need to make better, I will. But let us direct our 

anger where it is appropriate, and that is with these big insurance 

companies who are still raking in a huge amount of profits and millions of dollars and leaving people like Kathy to fend for themselves. Thank you very much. 

I yield back no time. 

Chairman COLLINS. Thank you. 

We all know we can agree to disagree, and in many cases we do, 

but in answer to a couple of things, I have a medical device company in my district, Curbell, and they happen to make that device 

that makes the bed go up and down and turns the television on 

and off and calls the nurse. Now, that is a medical device. And the 

medical device tax will impact their profits in a draconian way— 

2.3 percent of revenue. And as Dr. Aiken said a couple of weeks 

ago, a very successful company makes 5 percent of revenue on the 

bottom line. That is how a business works. A 2.3 percent tax is taking away half their profits. And as we know, a lot of startup medical device companies, that is where they come from. They do not 

make any money or they make a very small amount. So there are 

examples of very successful medical device companies that make 10 

percent of revenue on profit. But 2.3 percent is still wiping out 25 

percent of their profit. 

Stock prices are based on a multiple of your profit. That means 

the Strykers and the Greatbatches and the other companies are either going to have to see their stock price plummet by 25 percent 

or they are going to have the cuts. We are already seeing the cuts, 

we are already seeing the layoffs, and wishing it so does not make 

it so. The idea that we have a mandate here, and what is a mandate? You must do something. Well, that is not what the ACA is 

because for $95 an individual can beg off. And for $2,000, a company subject to the ACA can simply deny coverage. The young and 

the healthy, if they do not subsidize the sick and the old, I think 

there is everyone that understands it is the young and the healthy 

paying into a system that subsidizes the old and the frail, all of a 

sudden the penalties for the young and the healthy not having insurance are gone. Because when you think about it, $95 is their 

penalty? $2,000 from the employer? There is no longer a penalty 

for preexisting conditions. So there were folks who got insurance 

because they were afraid if they came down with a condition they 

could lose their house, they could lose this or that. There is no 

longer a penalty for preexisting conditions. There is a $95 cost to 

get out, and if the insurance is $1,500, I am afraid—only time will 

tell, and Mr. Thorn hopes this will not be the case—you are going 

to see the young and the healthy dropping insurance like there is 

no tomorrow because there is no ROI (return on investment), so to 

speak. 

I have met with the American Health Insurance Providers organization. They are already seeing the young and the healthy drop 

their insurance because the cost is very low, the risk is no longer 

there. I can tell you if I buy a new car, I get collision insurance 

in case I wreck the car. Now, if you told me after I wreck the car 

I can sign up for insurance, I am not going to get the insurance 

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until I wreck my car and I will not be buying collision insurance 

on my new vehicle, and there is a big correlation with that in the 

ACA. We will be seeing how this plays out, but it is not as easy 

to use the example of insurance companies making millions. I can 

assure you in western New York that is absolutely not the case, 

and I can absolutely tell you our CEOs do not make $25 million. 

But again, we will set that aside. 

I want to thank the witnesses for coming here today. This is certainly a controversial topic. We are going to see how this plays out. 

This is just one more step in getting four great witnesses to give 

us input. Some of it we agree on, some of it we will have to see 

how it plays out. The Subcommittee will continue to monitor the 

implementation of this health care law and the impact on small 

businesses. I am sure we will have some other hearings. And following this hearing, I do plan to send a comment letter to the Department of the Treasury on the proposed rule. They are in charge 

of implementing the fee. 

With that, I ask unanimous consent that members have five legislative days to submit statements and supporting materials for the 

record. So without objection, so ordered. 

This hearing is now adjourned. Thank you. 

[Whereupon, at 12:15 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

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1 An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable 

Care Act, Congressional Budget Office, November 30, 2009, pp. 15–16. 2 Holtz-Eakin, Douglas, ‘‘Higher Costs and the Affordable Care Act: The Case of the Premium 

Tax,’’ American Action Forum, March 9, 2011. 3 Barthold, Thomas A., letter to Senator Jon Kyl, Joint Committee on Taxation, Washington, 

DC, June 3, 2011. 4Medical Expenditure Survey, Agency for Healthcare Research and Quality, U.S. Department 

of Health and Human Services, Table 1.A.2.a (2010), http://meps.ahrq.gov/mepsweb/data—stats/ 

summ—tables/insr/national/series—1/2010/tia2a.pdf. 

Good morning Mr. Chairman, Representative Hahn, and other 

members of the subcommittee. My name is William Dennis. I am 

a Senior Research Fellow with the NFIB Research Foundation. Behind me is my colleague Michael Chow, a Senior Policy Analyst 

also with the Foundation who produced the simulation on which 

this testimony is based. Thank you for inviting us to discuss our 

recent research examining the economic effects of the health insurance premium tax contained in the Patient Protection and Affordable Care Act (PPACA) on the small business sector and the broader U.S. economy. 

I ask that my testimony be submitted for the record along the 

results of our mid-March simulation. 

The health insurance premium tax was one of the largest revenue components included in the original law to offset the budgetary costs posed by PPACA. Formally structured as a fee on 

health insurers, this tax was intended to raise more than $100 billion over a decade beginning in 2014. However, both government 

and independent analysts believe that the tax will be passed on to 

consumers in the form of higher health insurance premiums. 

The Congressional Budget Office (CBO) explicitly asserted that 

this tax/fee/surcharge ‘‘would be largely passed through to consumers in the form of higher premiums for private coverage.’’1 A 

March 2011 report by former Congressional Budget Office Director 

Douglas Holtz-Eakin concurred in that view 2 as did the Joint Committee on Taxation (JCT) in a letter to Senator Jon Kyl dated June 

3, 2011.3

The tax has a number of oddities and one of them raises a major 

equity and competitive issue for smaller firms. The tax falls almost 

exclusively on small businesses. Their larger competitors have no 

equivalent obligation. Small-businesses, therefore, are asked to absorb a significant share of the financial load of the program while 

placing them in a less competitive position to do so. 

The reason for these problems is that the tax is a premiums tax 

which targets the fully-insured market. The full-insured market is 

the small-business (and individual) market. Small businesses rarely have the economic resources to self-insure, which would allow 

them to escape the tax like large firms do. The Department of 

Health and Human Services’ (HHS) Medical Expenditure Panel 

Survey (MEPS) reports that among private sector establishments 

who offer health insurance 87 percent of those with fewer than 100 

employees do not self-insure while nearly 75 percent of those with 

between 100 and 499 employees do not.4 The remainder purchase 

fully insured plans. For these small businesses who participate in 

the fully-insured market, the costs of higher premiums will be 

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5The model does not allow us to assess the competitive impacts of the tax. 

6Treyz, Federick, ‘‘Estimated Economic Impacts of the ‘Small Business Jobs and Tax Relief 

Act’ ’’, Regional Economic Models, Inc., June 2012. 7 Joint Economic Committee, op. cit. 8 Holtz-Eakin, op. cit. 9 U.S. Bureau of Labor Statistics, U.S. Department of Labor, http://www.bls.gov/news.release/ 

metro.t03.htm. 10 Chow, Michael J., ‘‘Effects of the PPACA Health Insurance Premium Tax on Small Businesses and Their Employees: An Update,’’ NFIB Research Foundation, March 19, 2013. 11http://www.nfib.com/research-foundation/studies/hit-cost. 

borne jointly by both the employer and the employee in proportion 

to their share of premium. 

To quantify the economic effects the health insurance tax would 

have on small businesses and the broader economy, the NFIB Research Foundation employed the Business Size Insight Module 

(BSIM), a dynamic economic forecasting tool produced by Regional 

Economic Models, Inc., or REMI.5 The REMI model is the leading 

forecasting and policy analysis model in use and is employed by 

hundreds of governmental agencies, universities, consulting firms, 

nonprofits, and other entities. In the past year, for example, the 

Senate employed the REMI model to estimate the economic impact 

that S.2237, the Small Business Jobs and Tax Relief Act, might 

have on the economy.6

The modeling process is reasonably straight-forward in the sense 

of employing publicly available data as inputs for the calculations. 

However, since the tax is fixed (through 2018), one must estimate 

the number of people who will be insured by small businesses in 

order to obtain the cost of the tax per insured. We relied on experts 

for that number. The JCT estimated the premium increase at between 2.0 and 2.5 percent;7 Holtz-Eakin estimated it at 3.0 percent.8 We arbitrarily selected 2.5 and 3.0 percent, and simulated 

both. 

After accounting for a range of potential healthcare inflation 

rates in future years, the REMI model predicted a reduction in national private sector employment of 146,000 to 262,000 jobs in 

2022. For perspective, that is the equivalent of wiping out all current payroll employment in Binghamton, Ithaca, and Elmira, New 

York, or Santa Barbara and El Centro, California or Sioux City and 

Cedar Rapids, Iowa.9 Fifty-nine percent of the job losses are forecast to be in the small business sector, a reflection of the health 

insurance tax’s incidence on the sector. In addition, the cumulative 

reduction in real output over the ten-year forecast window is projected to be as high as $185 billion. Earlier reports 10 discussing 

initial findings along with the detailed methodology we employed 

are available on the NFIB website.11

In conclusion, we hope the research foundation’s analysis has 

been helpful to you in understanding the substantial costs this 

health insurance fee stands to pose to small businesses and the debilitating effects it will have on the sector’s ability to create jobs 

and put our nation back to work. Thank you again for the invitation to address your subcommittee today. We look forward to any 

questions you may have. 

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The New York Farm Bureau commends the Subcommittee on 

Health and Technology of the House Committee on Small Business 

for holding this hearing on the impact of the Health Insurance Tax 

(HIT) on farms and small businesses. I’d like to thank Chairman 

Graves and Ranking Member Velazquez, and also thank Subcommittee Chairman Collins, who is my own Representative. I appreciate you inviting me to testify today. 

My name is Dean Norton. I am president of New York Farm Bureau, which represents 25,000 members, and I also serve on the 

Board of Directors of the American Farm Bureau Foundation, representing the Northeast. My family owns and operates Oak Orchard dairy farm in Elba, N.Y., and I am part of the fifth generation on this land. We also have a custom trucking operation for forage and commodity harvesting. The dairy encompasses more than 

1,000 acres of farmland and currently has 900 milking cows. In addition, my wife, Melanie, and I also operate DMCK Cattle Company. 

The HIT Tax was passed as part of the Patient Protection and 

Affordable Care Act (ACA). It has nothing to do with reforming the 

health care insurance system but was included in the ACA as a 

way to raise revenue to offset the cost of the legislation. The HIT 

Tax, which will be levied on a health insurance company’s net premiums, is expected to raise $102 billion over the first 10 years. 

During 2014, the first year that the HIT Tax takes effect, $8 billion 

will be collected. A recent Congressional Budget Office report confirms that the HIT Tax ‘‘would be largely passed through to consumers in the form of higher premiums for private coverage.’’ 

Most farmers and other small businesses do not self-insure because they do not have a large enough pool of employees. Instead, 

small employers like my family purchase health insurance on the 

fully insured market. According to the Kaiser Family Foundation’s 

2012 Survey of Employer Health Benefits, 15 percent of the smallest employers self-insure, roughly half of employers with 200–999 

workers self-insure, and 93 percent of firms with more than 5,000 

workers do so. Because the smallest employers almost never selfinsure, we will end up bearing the brunt of the HIT tax. 

But health insurance costs for small businesses are already rapidly trending higher, increasing 103 percent since 2000. According 

to the Joint Committee on Taxation, the HIT tax will further increase family premiums by $400 or 2.5 percent in the year 2016, 

making it even harder for farmers to purchase coverage for themselves, their families and their employees. 

In my family’s business, the dairy industry provides a highly unpredictable income—the price of milk and the price of our inputs 

can vary greatly. But health insurance costs have been increasing 

steadily over time. Our business has to plan to pay for health insurance costs no matter how the business is doing month to month. 

Because of the cost of insurance we have had to turn to a high deductible policy and we are now covering about half the number of 

employees we once did. 

In order to keep up with the expenses of employer-provided 

health insurance, it was necessary for the farm to significantly 

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changed the cost structure from covering about 90 percent of the 

insurance cost to approximately 50 percent at this time through 

the high deductible plan. Unfortunately, the people who are really 

hurt by this change are the employees. They now have to contribute a larger portion of the expense when they seek medical attention and I think we all know that this can be a disincentive for 

workers to seek care in some instances. 

Being able to offer health insurance is important to us we strive 

to offer benefits that attract high quality workers and to keep them 

healthy and productive once they are on the payroll. A dependable 

workforce is especially important in our dairy business which operates 7 days a week, 365 days a year and in our trucking business 

in which harvest seasons are short and a down day could make the 

difference between turning a profit or not. 

Escalating health insurance costs not only impact farm employers, but also those who purchase health insurance coverage for 

themselves and their families. The rise in health care costs in recent years has disproportionately impacts rural America where, according to the Council of Economic Advisors, 24.2 percent of families spend more than 10 percent of their income on health insurance coverage, compared with 18.1 percent of families in urban 

areas. 

In conclusion, I would like to encourage all members of the 

House Small Business Committee to become cosponsors of H.R. 

763, introduced by Reps. Charles Boustany (R-La.) and Jim Matheson (D-Utah), to repeal the annual fee on health insurance providers that was enacted by the ACA. Repealing this counterproductive tax will certainly prevent premium increases for individuals and small businesses in the fully insured health insurance 

marketplace. 

Thank you again for the opportunity to share my story. I would 

be glad to take your questions. 

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Statement of Rep. Charles Boustany (LA-03) 

House Small Business Committee 

Subcommittee on Health and Technology 

‘‘The Health Insurance Fee: Impact on Small Businesses’’ 

Hearing 

May 9, 2013 

Enabling all Americans to have access to quality and affordable 

healthcare was, and remains, a laudable goal. Unfortunately, actual public policies passed by Congress, too often come with unintended consequences and unexpected price tags. The President’s 

health care law is a prime example of this. 

For instance, take small businesses and the health insurance 

coverage countless enterprises provide for their workers and families. Recently, Gallup’s national poll reported that health care costs 

and taxes served as the two greatest challenges already facing 

small businesses. Now, by way of the President’s health care law, 

millions of American Main Street enterprises and the even more 

millions of workers they employ will be subjected to a new health 

insurance tax (HIT) at a price tab over $100 billion. Increased premiums will not only impact small businesses’ bottom lines and family budgets, they will also lead to negative economic consequences. 

Promoted as a ‘‘health insurance fee’’ on insurers, the HIT is unavoidably a tax on small enterprises and the self-employed. Even 

the Congressional Budget Office (CBO) noted the costs will simply 

be passed on to policyholders. The HIT will cost each affected family about an average of $5,000 in higher premiums over the next 

decade. 

American small businesses and workers aren’t asking for a bailout or a handout, they just want a level playing field. Instead they 

received a tax increase for an expensive health care program they 

did not ask for our could even afford, while corporate interests and 

unions were given a pass. It’s wrong and needs to be fixed before 

it goes into full effect in 2014. 

There is hope, however. Congress has the ability to enact what 

many call the ‘‘small business fix’’ to the President’s health care 

plan through legislation I introduced named the, ‘‘The Jobs and 

Premium Protection Act.’’ H.R. 763 prevents premium increases for 

small businesses and families and protects employees’ jobs by repealing this unfair tax. The bill is a measured reform ensuring 

America’s small businesses and workers are not targeted with billions of dollars in new taxes or forced to join the ranks of the unemployed. The legislation has overwhelming bipartisan support 

that continues to grow each day. 

Last year, similar legislation was cosponsored by 226 members 

of Congress. I am hopeful my colleagues in the House and the Senate recognize the potentially disastrous economic effects this tax 

will have and will join in honoring our commitments to protect 

small businesses and the millions of workers and families depending on them. 

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As small businesses inch toward 2014, when major provisions of 

the Affordable Care Act (ACA) will be implemented, the small business health insurance tax (HIT) will become an expensive reality. 

This tax may make the ability to offer health insurance coverage 

even more cost-prohibitive for employers and the ability to purchase health insurance coverage out of reach for many self-employed individuals. According to the National Federation of Independent Business Research Foundation, the small business health 

insurance tax may cause up to 249,000 lost jobs and up to $30 billion in lost sales over the next decade. In this economy, American 

families and small businesses should not have to face a forced tax 

increase. It’s bad policy. 

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Statement for the Record 

Hearing on the ‘‘The Health Insurance Fee: Impact on Small 

Business’’ 

May 9, 2013 

Subcommittee on Health and Technology 

House Committee on Small Business 

Joe Moser 

Interim Executive Director 

Medicaid Health Plans of America 

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Chairman Collins, Ranking Member Hahn, and other distinguished members of the Subcommittee on Health and Technology 

of the House Committee on Small Business, I am submitting this 

Statement for the Record on behalf of Medicaid Health Plans of 

America (MHPA) for the hearing titled, ‘‘The Health Insurance Fee: 

Impact on Small Business,’’ conducted by the Subcommittee on 

May 9, 2013. My comments are regarding the insurer fee’s impact 

on the Medicaid program. 

MHPA is the leading national association solely focused on representing the interests of Medicaid health plans. MHPA’s 117 

member plans serve more than 15 million beneficiaries in 34 states 

and the District of Columbia. As you may know, over half (51%) of 

all Medicaid beneficiaries now receive their Medicaid benefits 

through full-risk, capitated Medicaid health plans. 

MHPA appreciates the Subcommittee’s attention to the impact 

that the insurer fee, which is contained in Section 9010 of the Patient Protection and Affordable Care Act (PPACA), Public Law 

111–148, will have on consumers and small businesses. This tax 

would result in higher health insurance premiums in the commercial market and will be burdensome for small businesses that do 

not self-insure, as was discussed during the hearing. 

However, states’ Medicaid programs and Medicaid beneficiaries 

will also be heavily impacted by the insurer fee. The insurer fee applies to most health insurance companies in the market and this 

includes nearly all of MHPA’s membership, Medicaid health plans 

that contract with states to serve as the payment and delivery system for states’ Medicaid beneficiaries. 

The negative impact of this fee is especially apparent when analyzing its effect on state Medicaid programs. The Medicaid program 

serves our nation’s neediest population, including low-income pregnant women, children and individuals with disabilities. Each 

state’s Medicaid program is funded by the federal government and 

states. Most states contract with managed care organizations to deliver Medicaid benefits and services to beneficiaries. The states are 

required by the federal government to pay Medicaid health plans 

actuarially sound rates to ensure that plans have enough resources 

to cover the care needed by enrollees as well as common costs of 

doing business, which include taxes and fees. This means that 

Medicaid health plans will be paid with state and federal dollars 

to cover this fee owed as a result of the PPACA. Further, this fee 

is nondeductible and counts as taxable income, which only exacerbates the cost. 

MHPA commissioned Milliman, a leading actuarial firm, to analyze the impact of the fee on Medicaid health plans and to quantify 

the resulting cost to states and the federal government. The Millman report found that over ten years, the fee would cost the government $38.4 billion. The state portion of this estimate is $13.6 

billion and $24.8 billion would be the federal portion. 

The loss of state and federal Medicaid funding that would result 

from this fee being placed on Medicaid health plans will strain 

states and the Medicaid programs, as well as reduce funding and 

access to services available for Medicaid beneficiaries. As states 

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face financial pressure to implement the PPACA and expand the 

Medicaid program, the insurer fee will drain states of valuable and 

limited health care dollars. 

In closing, MHPA supports full repeal of the insurer fee. 

We applaud Congressman Boustany’s legislation, H.R. 763, 

to fully repeal the fee in order to avoid the negative impact 

that it will have on state Medicaid programs and beneficiaries, as well as companion legislation, S. 603, introduced 

by Senator Barrasso. We urge Committee members to continue 

to recognize the negative impact that this fee will have on the Medicaid program as one very important component to the overall concerns regarding this tax contained in the ACA. 

Thank you for the opportunity to submit a Statement for the 

Record on behalf of MHPA. 

Æ 

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