One of the new taxes in Gov. Inslee’s operating budget proposal is a “covered lives assessment.” This charge on health insurers would fund “new and ongoing investments in foundational public health services.”

The tax has been introduced as SB 5149, and the bill was heard by the Senate Committee on Health & Long Term Care on Wednesday.

The bill would assess a per member per month (PMPM) tax of $3.25 on health carriers, Medicaid managed care organizations, and third-party administrators in fiscal year 2023. Instead of setting a PMPM amount for later years, the bill specifies how much would be raised. Thus, the PMPM amount in future years would depend on how many organizations (and how many lives) are subject to the tax. The bill would set the total assessment at $143.0 million for FY 2024 and $200.0 million for FY 2025 and thereafter.

Collections from the tax would be deposited in the foundational public health services account. The foundational public health services account was created in 2019 and is currently funded with half of the collections from the vapor products tax. Revenues in the foundational public health services account are appropriated to the Office of Financial Management and then allocated to the Department of Health for public health services. Foundational public health services are defined as control of communicable diseases, chronic disease and injury prevention, environmental public health, family health, access to health services, vital records, and cross-cutting capabilities (e.g., communications).

The Office of the Insurance Commissioner (OIC) estimates that the assessment in SB 5149 would increase revenues by $204.8 million in 2021–23 and by $343.0 million in 2023–25. OIC estimates that the tax would be $2.27 PMPM in FY 2024 and $3.18 PMPM in FY 2025 and thereafter.

As many people testified in the public hearing, the proposed tax would make health insurance more expensive.

For example, the state itself provides health coverage, so it would also have to pay the assessment. In the bill’s fiscal note, the Health Care Authority (HCA) estimates that paying the covered lives assessment on Medicaid clients would cost $69.3 million a year. Of that, HCA assumes that the federal government would pay about $44.5 million (through the federal Medicaid match). The remaining $24.7 million would be paid from the general fund–state (GFS).

Additionally, HCA assumes that the cost of the tax for state and school employees would increase the state funding rates in the Public Employees Benefits Board (PEBB) and School Employees Benefits Board (SEBB). HCA estimates that this would increase spending by $24.4 million a year (of that, $16.0 million would be paid from the GFS).

Gov. Inslee’s 2021–23 operating budget proposal assumes that paying the covered lives assessment (for both Medicaid clients and state and school employees) would cost a bit more than that. His proposal would increase spending from funds subject to the outlook by $42.8 million for this purpose. (Spending from all funds would increase by $113.2 million.)

Finally, the Washington State Board of Health testified that SB 5149 “will support vital services to fight COVID-19.” The funding proposed in SB 5149 would not be available until FY 2023. Let’s all hope that COVID-19 response is no longer needed at that point. (Washington has received substantial federal funds to address public health needs during the current pandemic.)

Public health is an essential function of government, but it’s not clear that a special tax on health insurance (which would increase the cost of care) would be the most appropriate funding method.