The Tax on “Cadillac” Plans
I’m preparing for a lecture in my “Economics of ObamaCare” course and I thought it would be a public service to make sure we all know about just one of the features in this gift that keeps on giving. So here’s a rundown of the tax on “Cadillac” plans:
One of the most significant, and controversial, provisions of the Affordable Care Act is the new excise tax on high-cost health plans proposed to both slow the rate of growth of health costs and finance the expansion of health coverage. The provision is often called the “Cadillac” tax because it targets so-called Cadillac health plans that provide workers the most generous level of health benefits. These high-end health plans’ premiums are paid for mostly by employers. They also have low, if any, deductibles and little cost sharing for employees.
Proponents of the new excise tax argue that these benefit-rich plans insulate workers from the high cost of care and encourage the overuse of care–such as unnecessary tests and hospital visits–that raise US health costs overall. However, the plans may be more costly and therefore subject to the new excise tax for reasons other than their generous benefits, including plan participants’ health status or advanced age.
A 40 percent excise tax will be assessed, beginning in 2018, on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for self and spouse or family coverage). Health insurance issuers and sponsors of self-funded group health plans must pay the tax of 40 percent of any dollar amount beyond the caps that is considered “excess” health spending.
Although the excise tax does not take effect for another four years, many employers are already scaling back their health benefit offerings or increasing workers’ deductibles and copays to avoid paying the tax. Proponents argue that employers need a renewed focus on cost control, and that when consumers must pay a share of the costs, they will be less likely to overuse care.
For consumers, especially those in poor health or with chronic illnesses who rely on Cadillac plans to cover high annual medical expenses, the tax means that they’ll have to pay much more for their health care. Critics of the tax say it unfairly “hollows out” and “slashes” health benefits.
They should just buy everyone a box of Band-Aids and say, “There. Now you all have health care.” See? 100% coverage!
Or, do what I did: enroll with the VA. Oh, wait. You have to be a veteran. That leaves out liberals. Oh, well.
Enrolling in the VA to avoid socialized medicine is like jumping in the ocean to avoid getting wet from a rainstorm.
“Proponents of the new excise tax argue that these benefit-rich plans insulate workers from the high cost of care and encourage the overuse of care–such as unnecessary tests and hospital visits–that raise US health costs overall. ”
Argh, this stuff is so infuriating it almost makes my head explode.
First of all, health insurance BY DEFINITION insulates individuals from the high cost of care and encourages the overuse of care. That is the STATED PURPOSE of health insurance. The easiest way to eliminate THAT problem would be to make health insurance illegal and require that all medical care be purchased in cash up front.
Secondly, the notion that this “raises costs overall” is absurd. Especially when employers are the ones footing the bill. It’s like claiming the fact that Jay Leno buys Ferraris “raises the cost of automobiles overall.” Well technically speaking yes, his spending more on cars does in fact make the statistic “average cost of cars” rise, but that doesn’t make the cost of MY Toyota Camry rise one bit. The “average cost” of a good or the “total cost” of all of one type of good purchased does not affect any individual transaction AT ALL.
To call these plans Cadillac plans is an insult to Cadillac. I work for a firm who provides such a plan, and it’s only slightly less atrocious than the Yugo plans that are offered through o’care. So let’s call it the Trabant tax, named after that famous piece of East German automotive engineering.
Once Obama is through with us, we’ll be quite happy to be driving our Trabants to our government provided health care worker.
Bob,
Do you think this provision is a bad idea?
Yes.
Bob,
Do you think the whole of Obama Care is a bad idea, or do you just object to this provision?
http://mises.org/daily/6587/The-Economics-of-ObamaCare
http://mises.org/daily/6587/The-Economics-of-ObamaCare
The socialist goal of egalitarianism is achieved not by bringing those at the bottom up, but rather by bringing those at the top down. Equality of misery.