Key Issues : Hidden Taxes
The Hidden Taxes on Insurance
Insurance can provide financial protection for almost anything that might happen unexpectedly or accidentally. Policyholders buy insurance to protect themselves against the chance of losses that can burden them financially. However, when policyholders pay premiums, they are paying not only to protect themselves and their families, they are paying for programs mandated by state law. These “hidden taxes” are passed on to policyholders in the form of higher insurance premiums.
Over the years, government at all levels has used the insurance industry to collect money for their special programs or projects, effectively using the insurance industry as a “tax collector” for government. Although the level of this activity differs from state to state, in the end, it is the policyholder who pays.
In these tough economic times, government officials are searching for ways to fund “special” programs without increasing taxes and many times look to private business to come up with the funds. The insurance industry in Michigan pays its fair share of taxes – over $225 million to the state annually.
This is in addition, however, to the more than $180 million the industry pays annually for special “state-mandated” programs. These include subsidized insurance funds, so-called “high-risk” pools, which provide below-cost coverage for some citizens and businesses.
An example of one of these state-mandated program is the Michigan Assigned Claims Facility, an organization created by state law to provide Personal Injury Protection (PIP) benefits to eligible persons injured in auto accidents — when no regular policy coverage is applicable or identifiable. Last year, the Assigned Claims Facility assessed private carriers $126 million to cover its losses. This amount was then distributed to policyholders of the insurance companies.
Another program is the Michigan Workers’ Compensation Placement Facility which provides workers’ compensation insurance coverage for employers who may have difficulty obtaining coverage from regular companies. This organization had losses in excess of $5 million last year.
Other special insurance programs required by state law and funded by private insurance companies and their policyholders include programs that reimburse employers or insurers for certain workers’ compensation benefits paid in excess of statutory limits in case of disability from silicosis, other dust disease or employment in the logging industry; conduct job safety training; and a program that offers financial grants for certain anti-auto theft programs.
Insurance companies need to do what they do best – serve their customers by providing a good product at a reasonable price. Adding costs to insurance premiums that most citizens associate with government responsibility adversely distorts the real cost of insurance.
The Insurance Institute of Michigan is committed to opposing this trend whenever it manifests itself in any legislative or regulatory proposal. We believe the industry has an obligation to consumers to help them better understand this process.