D.C. Council passes tax on health insurance to fund Obamacare exchange operations

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The D.C. Council passed a unique tax on health insurance products Tuesday to ensure its Obamacare exchange remains viable when federal grant funding dries up next year — a concern it shares with 14 states that set up their own health portals.

Lawmakers unanimously approved the 1-percent tax on coverage offered on and off the city-run health exchange, a broad move intended to fund D.C. Health Link’s nearly $30 million budget without burdening exchange plans with the costs.

Compared to the states, the District is relatively small and can attract fewer customers to its exchange, so it passed the far-reaching assessment to raise more money.

Some insurers objected to the move, saying the tax unfairly extended to insurance companies with products that cannot be sold on the Affordable Care Act’s new marketplace.

“We are disappointed in the Council’s decision, which is inconsistent with federal law,” the American Council of Life Insurers said in a statement. “The ACA clearly states that only carriers of participating health plans under the jurisdiction of the health exchange authority can be assessed to fund the exchange.”

Mila Kofman, executive director of the D.C. Health Benefit Exchange Authority, countered that it was “an issue of basic fairness,” because supplemental insurance providers derive a benefit from people gaining underlying policies.

“Insurers who benefit and profit — not the taxpayers — should pay,” she said in the run-up to the vote.

While the D.C. funding mechanism is distinct, the driving force behind the move is not.

The District and the states that set their own exchanges must hammer out funding schemes to make sure their health exchanges can survive when Washington cuts off implementation funding in January 2015.

“The grants are there to get the exchanges established, not for long-term operations,” said Timothy Jost, a health care policy expert at Washington and Lee University School of Law.

The federal government, which runs the Obamacare marketplace for nearly three dozen states, is charging insurers a 3.5 percent “user fee” on the premiums they collect through the exchanges.

Meanwhile, the administration paid out hundreds of millions of dollars in federal grants to states that took on the responsibility of setting up their own Obamacare portals. Some of those websites fell flat, prompting recriminations on Capitol Hill and a reported FBI investigation of Cover Oregon’s failures.

In the District, city lawmakers said they want their marketplace to flourish, but the newly budgeted funds come with responsibility.

“The exchange has to exercise restraint with regard to its expenses,” D.C. Council Chairman Phil Mendelson, a Democrat, said.

In general, the states are leaning on general revenues, withholding a larger percentage of premiums paid to insurers or shifting around dollars that were allocated for other health programs.

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