The Tax on Cadillac Plans

Posted on 12/29/2009 at 10:50 pm by Bob Cesca

I’m really torn on the excise tax on “Cadillac plans” — insurance policies valued at $23K or more annually — in the Senate bill.

On one hand, I would much rather see a rollback of the Bush tax cuts to pay for the subsidies and any future expansion of Medicare.

On the other hand, I agree with Ezra Klein that it’s a necessary means of controlling costs. Here’s the shorthand. Studies have indicated that more expensive policies don’t necessarily mean healthier people and better outcomes. In other words, a less expensive plan would probably function just as well as a more expensive plan. It’s like having too much house. It’s nice that you have extra rooms, but what the hell do you do with them?

So by discouraging expensive plans, people are more inclined to buy cheaper plans and — POOF! — the cost of insurance goes down. The cost curve, as they say, bends.

But much like the mandates, it’s a very difficult pitch to make to voters. Taxing the super rich isn’t so tough. How about we combine the two: Why don’t we tax the health insurance plans bought by people who earn $500,000 or more? Is that insane?

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  • Gottverdammt Klaus

    Bob, I’m with you on being torn.However, in order the for insurance companies to cover the great uninsured masses, isn’t discouraging “Cadillac plans” via taxation stupid? They (the insurance companies) need the income. They’re already fleecing the rich by offering them, are they not? Therefore, I don’t see why Uncle Sam needs revenue (or to discourage the policies), especially since they’ve outsourced healthcare to the market, for better or worse.It’s like clinical research: for every Viagra, there are several projects in development for cancer and other bona fide problems. Viagra allows that research to take place. I don’t see why “Cadillac plans” make the difference Ezra points to in his article.I could be wrong (rather hope I am, in fact) in drawing that analogy; I just don’t see how the tax cuts costs. How many companies offer $23K per annum plans? None I’ve ever worked for, and certainly not small businesses.

  • Bull Schmitt

    Only if there are cheap bastidges making half-a-mil a year. But for some reason it sounds ‘too smart by half’ when I try and think how you sell the idea. I could see some exemptions for people in dangerous mining/industrial/etc jobs that would possibly justify Cadillac coverage.Personally, I think a millionaire surtax should be saved to be part of the administration’s deficit reduction plan.

  • eljefejeff

    I say tax the fuck out of anyone who can afford it. If the upper 1% really does pay a third of all income taxes or whatever, then they obviously make way way way too much.

  • IntoxiNation

    Well let me put this is some perspective. My step-father has one of these so-called “cadillac plans” and doesn’t clear $55,000 a year. What his plan does is give him a lot lower out of pocket expenses ($5 prescription co-pay, $15 doctor’s visit) and a bigger network. It doesn’t add any magical cures or treatments that isn’t covered in lower plans, so I don’t see how we could say that having one of these plans will somehow make someone healthier. They just save some burden on the out of pocket side and make it a little easier to find a network provider.The big point that Bob Herbert was making in his article is that this will affect a bunch of people making $60-75 thousand a year, not the very well off at all, and that some estimates is that it will hit 20% of households. To counter this companies will more than likely offer the lower plans to get below that threshold. Some of the supporters of the cadillac tax have been drinking the Reagonmics Cool-Aid by saying that these savings will be passed from employer to employee (welcome back trickle down economics, my old nemesis), yet a recent survey of employers shows that only 16% say they will actually do that. The remainder will become “hey more profit!”.The cadillac tax was basically put in to appease conserva-dems like Nelson, Lincoln and Landrieu. That House version of the bill didn’t have this. Instead the House raised taxes on those making the really big $$$, a method much more preferred by the public.Hopefully we can scrap this whole part of the Senate bill and go with the House version. The House version gave a guaranteed source of income for the government, where as the Senate version is based off of way too many variables. Also doing away with it will win back most of the union support. Anyone who has ever been in a union knows that health care is always an excellent bartering chip to have on the table, and this removes it.But if they do remove the cadillac tax, then I think something else that should go in is a ceiling on government subsidies. Take 2 families earning $60,000 a year. One family has a 2nd tier silver plan, while the other has a cadillac plan. It really isn’t fair for the government to throw a bunch of extra money at the cadillac plan. Instead subsidize both families to the same amount and the family with the cadillac plan either pays out the extra or their employer does. They will still be saving money and it will make the system much more fair.

  • kansasdem

    Don’t be torn. The Cadillac plan tax should be adjusted by income.Someone making less than $100,000.00 per year should not pay the Cadillac plan tax, those making more than $100,000.00 per year should, or it could even go somewhat more progressive than that.

  • http://www.osborneink.com Matt Osborne

    Bob, to give the numbers some perspective you have to look at $23,000 as the cost of a Cadillac plan versus $13,500 as the average cost of a family plan today. It’s almost ten thousand dollars more, and NO — “Cadillac plans” don’t necessarily deliver better outcomes. They just provide more exotic medicine.An example: part of GM’s restructuring plan to avoid bankruptcy was to move retirees over 65 off the company’s health plan and onto Medicare. As a result, I took any number of calls from guys looking for a discount on injectable boner medicine. It had been covered under their health plan — and now it wasn’t covered by Medicare. Neither is Viagra, which I also got calls about from former GM workers because it had previously been paid for.Viagra was north of $15 a pill through the discount program. The Caverject was about $1,300 if memory serves.

  • http://www.osborneink.com Matt Osborne

    Another thought, Bob: not all employees of a large company will have the same health plan. CEOs and executive staff almost ALWAYS have a “better” plan option than the riffraff. Who cares if Goldman Sachs wants to pay taxes on Blankfein’s boner shots?

  • http://www.osborneink.com Matt Osborne

    BTW yes, you apparently inject the stuff directly it into your penis.

  • Irish Girl

    @Matt well that’s a showstopper!