Health Insurance Tax to Raise Costs for California Consumers

California consumers and employers will face $22 billion in higher health care costs as a result of a new health insurance tax included in the Affordable Care Act (ACA), according to a state-by-state analysis conducted by Oliver Wyman for America’s Health Insurance Plans (AHIP).

The ACA imposes a new sales tax on health insurance that starts at $8 billion in 2014, increases to $14.3 billion in 2018, and will increase based on premium trend thereafter. The Joint Committee on Taxation estimates that the health insurance tax will exceed $100 billion over the next 10 years.

“This tax will add a financial burden on California families and small businesses at a time when they can least afford it,” said AHIP President and CEO Karen Ignagni.  Ignagni noted that the health insurance tax will increase costs for individuals and families purchasing coverage on their own, small businesses, Medicare Advantage beneficiaries, and Medicaid managed care programs.  AHIP supports legislation (H.R. 1370,S.1880) that would repeal the tax.

A previous report found that the health insurance tax wold increase premiums in the insured market by 1.9% to 2.3% in 2014 and would increase premiums 2.8% to 3.7% by 2023.

California consumers and employers will pay $22.2 billion to $22.4 billion more over the next 10 years as a result of this tax. The tax will raise costs in specific insurance market segments and public programs in California as follows:

• Individual market consumers: Increase premiums over a 10-year period for single coverage by an average $1,954 and for family coverage an average $4,909.
• Small employers: Increase premiums for single coverage by an average $2,792, and for family coverage an average $6,916.
• Large employers: Increase premiums for single coverage by an average $2,566, and for family coverage an average $7,141.
• Medicare Advantage beneficiaries: Increase costs for beneficiaries by an average $3,847.
• Medicaid managed care beneficiaries: Increase the average costs of Medicaid coverage by about $971 per enrollee.

According to the Joint Committee on Taxation, “For those insurance premiums that are subject to the fee, we estimate that the premiums, including the tax liability, would be between 2.0% and 2.5% greater than they otherwise would be.” In a November 30, 2009 letter, the Congressional Budget Office stated that, “New fees would be imposed on providers of health insurance and on manufacturers and importers of medical devices. Both of those fees would be largely passed through to consumers in the form of higher premiums for private coverage.”  To learn more, visit

Last Updated 05/25/2022

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