Over the last several days, White House officials publicly embraced a plan to tax ‘gold plated, Cadillac’ insurance plans valued somewhere between $17,000 and $25,000 a year.
The proposal would levy a tax on the employer and the insurance company offering the coverage in an effort to raise some new revenues for health care reform and “dissuade sales of plans with overly generous benefits.” “A premium charge on top of the most expensive packages is one of the ways to ensure that there’s a lid on health-care costs,” a top administration official told POLITICO. “The president believes this is an intriguing idea”:
- President Obama: What’s being talked about now, I understand, is the possibility of penalizing insurance companies who are offering super, gold-plated, Cadillac plans… it may be an approach that doesn’t put additional burdens on middle-class families. [News Hour, 7/20/09]
- David Axelrod: “That there was– this was an intriguing idea to put an excise tax on high end health care policies like the ones that the– the executives at Goldman Sachs have–the forty thousand dollar policies. His big interest is in keeping the yoke of this, the burden of this, off of the middle class who are struggling in this economy. If– if it– if it meets that task then he’ll– he’ll– he’ll certainly give it a consideration. So I– I think that certainly a possibility.” [Face the Nation, 7/26/09]
- Sen. Kent Conrad (D-ND): Yes. I think we’ve got to [tax "Cadillac plans"]. Again, virtually every economist that has come before us has said, you’ve got to reduce that tax subsidy as part of an overall strategy to really contain costs. [This Week, 7/26/09]
According to the Kaiser Family Foundation, the average family pays approximately $13,000 for health coverage; 9 percent “of workers have family coverage with premiums of $17,000 or more” and “less than one percent have coverage with premiums of $25,000 or more.” Axelrod suggests that the new tax would target “executives at Goldman Sachs,” but a closer examination suggests that other Americans, those with less generous packages, may also pay a price.
While some plans are certainly too generous, others cost more because they insure a sicker workforce, workers in dangerous occupations or higher cost areas. As Merrill Goozner explains, “the only thing ‘Cadillac’ in the health insurance costs of that GM worker is the nameplate of the car rolling off the assembly line. His higher premiums are a direct function of he and his co-workers’ higher claims, not more generous benefits.”
One could presumably design a policy that accounts for occupation or geographic variation, but that would “reduce the tax take.” “To avoid taxation, employers or insurers might tinker with the benefits to drive the premium down just low enough to miss the threshold” or simply pass on the costs to the employee in the form of higher deductibles. In other words, just like capping the tax exclusion, employees of modest means, but with higher than average benefits, could end up financing reform.
In fact, the skyrocketing costs of health care coverage are already leading employers to restructure their packages in a way that shifts greater cost to the employee. As Paul Fronstin, a senior research associate with Employee Benefit Research Institute (EBRI), explains, “over the last few years employers [have been] shifting more of the cost coverage to employees…last year we found that $1,000 deductible was now common for an average small group of 200 or fewer.” A recent Commonwealth Fund study concluded that between 2004 and 2007 out of pocket expenses increased by 34 percent for adults with employer coverage. And according to one survey of businesses, “one-fifth of the companies said they planned to add or switch to a high-deductible or ‘consumer-directed’ health plan with a health savings account, perhaps doubling the percentage of employers who offer such plans.”
This new tax would certainly escalate this trend and reformers must be careful about who the tax hits and at how much. Of course, the more people they exclude, the greater the tax bite for those who fall under the “executives at Goldman Sachs” distinction.