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What Are Health Insurance Taxes?

C. Mitchell
C. Mitchell

Health insurance taxes are government levies that relate in some way to the provision of health insurance services. The majority of health insurance taxes apply to insurance providers, but some also attach to individual policyholders. Providers are sometimes taxed based on the quality and quantity of plans they provide, while recipients can, in places, find their insurance benefits taxable income. Almost everything about these taxes and how they are collected is jurisdiction-specific.

In most countries, taxes are a government tool to both collect money and influence behavior. Taxes are usually structured so that they both fund national initiatives and encourage savvy, responsible behavior. Health care taxes are usually more about influencing medical access policy than they are about collecting revenue. They exist predominantly in countries without socialized health care, where medical insurance is either a personal elective or an employment benefit.

A health insurance claim form.
A health insurance claim form.

Residents of countries without government-sponsored health care must usually rely on private insurance to cover the costs of hospital care, doctors’ visits, and other medical expenses. The most common health insurance taxes are designed to incentivize companies to offer insurance as a paid benefit. Comprehensive plans offered to all employees can often exempt a corporation from tax, for instance, whereas partial coverage, modified coverage, or no coverage typically carries graduated tax consequences.

Structured health insurance taxes are rarely overtly framed as a system of penalties, though they often act that way in practice. Corporate officers must weigh the cost of the tax, which can be either flat or percentage-based, against the cost of providing health care coverage. Most of the time, it works out to be less expensive to provide at least basic plans.

Taxes levied against individual policy holders tend to be designed more for revenue gain than anything else. Governments facing financial trouble often look for new things to tax, and health care benefits are sometimes considered. Jurisdictions that collect or have debated collecting tax from individual insurance owners usually begin by classifying the value of insurance benefits as income. When this happens, individuals are taxed as if their policies were liquid assets, which usually ups their tax brackets and results in more money owed. Taxes based on health benefits are generally very unpopular with the public.

In some places, doctors and other service providers are also taxed based on their insurance-derived revenues. Most insurance plans require both a payment from the insurance company and the patient. Depending on the tax structure, these amounts must sometimes be treated separately and taxed according to different standards.

Health insurance taxes are not always about collecting. In most places, companies and qualifying individuals can also take tax deductions for making certain plan choices. Deductions work as sort of a reverse tax: they serve as credits that will reduce overall liability. Companies that provide health benefits, consumers who make wise choices with respect to care, and doctors who accept a broad range of plans can often claim deductions that lessen their overall tax burden.

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    • A health insurance claim form.
      By: JohnKwan
      A health insurance claim form.