The federal government issued guidance in October requiring states to build the tax into what they pay for-profit Medicaid health plans that serve low-income people. The first year's tax was due to the IRS in September, and state governments are now settling up with insurance companies.
It works like this: State governments pay insurers for the tax. The insurers then pay the tax to the federal government. The federal government then reimburses part of the cost to the states.
It may sound absurd, but it's not amusing to state governments, which wind up losing 54 cents for every dollar of the insurance tax. State taxpayers end up the biggest losers, without any added benefit to their state's low-income Medicaid patients.
"It's like a merry-go-round with an extra loop in the middle," said Rebecca Owen of the Society of Actuaries.
The extra loop? The health law tax is not deductible for the insurance companies when they file their corporate income taxes, and state governments must kick in extra to cover that cost, too.
