Immunization tax is extended to most self-insurers

The thousands of free flu shots Rhode Islanders receive every year aren’t entirely free.
The state provides flu vaccine, plus numerous other immunizations for adults and children, without charge to clinics, but pays for it with a tax on health insurance policies. Insurers are charged based on a percentage of the premiums they collect and pass them along to customers.
But the system has a problem.
Organizations that self-insure their employees do not pay a share of the cost of vaccinations.
And over the last decade the number of companies that take on at least part of the risk for paying employee claims has grown, meaning the premium pool funding the immunization program has narrowed.
According to a 2013 report from the R.I. Executive Office of Health and Human Services, the number of Rhode Islanders covered by traditional “fully insured” policies fell by 23 percent while the number of people self-insured rose 12 percent between 2005 and 2012.
At the same time, the annual cost of immunizing the state, which has one of the highest vaccination rates in the nation, has risen from about $10 million to $30 million over the same period. The state revenue-estimating conference projected the cost of the program to be $33 million in fiscal 2015.
The report described covering these rising costs through premiums paid by a shrinking number of individuals and businesses as unsustainable.
As with almost any tax change that shifts costs from one group to another, however, the search for a solution to the problem has been elusive, with several bills dying in the General Assembly over the last few years.
But this year change has begun.
Under provisions added to the fiscal 2015 budget, the cost of the immunization program will be extended to all health insurance policies – fully insured and self-insured – and assessed on a per-person basis instead of a percentage of premiums. The change, supported by the R.I. Department of Public Health and pushed by Blue Cross & Blue Shield of Rhode Island, will go into effect in 2016 and take some pressure off premiums for fully insured businesses, according to the insurer.
“This is important because the pool of fully insured Rhode Islanders has shrunk and so annually the pressure on the businesses that cover them was continuing to grow,” said Blue Cross spokeswoman Stacy Paterno.
According to Paterno, by extending the immunization costs to organizations that self-insure, the charge passed along to the traditionally insured could drop from $100 per life covered, per year to $48 per life, per year.
Still, not all questions about immunization funding have been resolved.
The changes exclude two large categories of self-insured employers from the immunization charge: nonprofit hospitals and the state government.
Previous versions of the bill had also excluded municipal governments from the charge, but they will now have to pay when the changes go into effect.
For changes meant to create a more equitable system, the exclusions raise questions about whether the new system is indeed as fair as it could be.
In general, it’s been the largest companies that have pioneered self-insurance, especially total self-insurance, as they are the only ones with the resources to cover large claims.
And proponents of broadening the pool of businesses paying for the immunization program have cast it mostly as a lifeline for the state’s small businesses. But as health care costs have become an increasingly large part of the operating expenses of all companies, many medium-sized and even small businesses have begun exploring forms of self-insurance.
Samuel B. Slade, president of the employee-benefits division of USI of Rhode Island, an insurance broker, said spreading immunization costs makes sense as long as it doesn’t discourage the current experimentation companies and insurers are doing on self-insurance and a variety of coverage schemes, such as Health Reimbursement Arrangements and high-deductible plans.
Tax advantages are part of the appeal of these approaches, Slade said, but even more so is the flexibility they provide to find ways to bend the cost curve.
While the changes will likely increase costs for many large companies, universities and cities, proponents say they will be a boon for small businesses, who had tried to alter the system even more.
A bill filed this year that did not pass would have shifted not only the immunization charges to a per-person tax, but done the same with the 2 percent health insurance premium tax that now goes directly to the general fund.
Rhode Island would have been the only state in the country without a premium tax and that proposal did not pass.
“The state has a high vaccination rate, and that is a great thing, but it is not free,” said Stephen Doyle, president of the Cranston Chamber of Commerce, which supported the more aggressive changes to the premium tax. “Spreading this over a larger base of people will make it more palatable. We have a situation where small businesses are doing all they can to drive down premiums, and anything is going to be helpful.”

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