Commentary: New tax on health insurance would threaten South Dakota’s world-class health care

Here in South Dakota, we're blessed to have some of the best healthcare in the country. In fact, a recent ranking by WalletHub rated South Dakota 3rd overall for the best health care. Unfortunately, more than half of the state's residents will pay more for worse health care if a new tax on health insurance passes in Congress.

Currently, the health insurance benefits workers receive from an employer are not taxed as income or wages. Washington politicians want to change that— they want to increase costs for working-class families by taxing their employer-sponsored health premiums. In South Dakota, about 452,000 people, roughly 52% of the total state population, access medical insurance through their workplace. The latest proposal would tax health plans valued 125% above the national average to raise revenue for the federal government, resulting in smaller paychecks for workers and their families.

It has become clear that this tax will significantly impact low-and middle-class workers and their families. As healthcare costs continue to escalate, insurance premiums have increased.

According to a 2023 report on employee health insurance premiums, on average family coverage already costs approximately $23,968 annually, while self-only plans average around $8,435 per year. These figures illustrate how closely even median plans approach the cap thresholds.

In 2024, employer-sponsored health insurance premiums have risen significantly, marking a 7% increase from the previous year. This rise surpasses the growth in wages and inflation, resulting in a five-year trend where health premiums have consistently outpaced other economic factors.

South Dakota's vibrant community of small businesses relies on affordable healthcare options to thrive. These 88,000 small businesses make up 99% of all businesses in the state. Small and family-owned enterprises employ nearly 210,000 people, accounting for over 58% of our workforce.

For small businesses already grappling with economic uncertainties, this tax poses an additional hurdle. It threatens to increase operational costs and potentially hinder growth and hiring. These burdens could diminish the economic stability and entrepreneurial spirit that define our state.

Added costs would be passed from employers onto their employees and their families who receive health insurance through their workplace. This could force tough decisions, such as increasing deductibles and copays, reducing benefits, cutting spousal coverage, or even job losses.

The escalating cost of healthcare is causing concern across all income brackets. A February 2024 poll revealed that approximately 75% of adults worry about covering unexpected medical expenses or affording healthcare for themselves and their families. Additionally, nearly half of the respondents expressed anxiety about meeting their monthly insurance premiums or covering the costs of the prescription drugs they need.

These concerns are justified as South Dakotans are facing increased expenses for everyday items. On average, households in South Dakota are now paying $1,134 more per month to purchase the same basket of goods and services compared to January 2021. Since then, the impact of inflation has led the average South Dakota household to shell out $27,781 in additional costs.

A top-down approach from Washington demonstrates a disconnect from the realities of South Dakotans. It imposes burdensome regulations and taxes without regard for our hardworking middle-class families and small businesses. This policy threatens to undermine our quality of life and erode the free-market principles that fuel South Dakota's success.

Rejecting punitive tax policy is crucial to championing solutions that empower families, promote job creation, and ensure affordable healthcare options. Our representatives must prioritize policies that align with our state's values and foster economic growth without imposing burdens that harm our residents and businesses.