Tuesday, September 22, 2009

"Cadillac" Healthcare Plan Under Attack!

There was a time when the Cadillac was the automobile of choice among the wealthy and influential. In this healthcare debate the term “Cadillac” has been applied to some current healthcare plans. At first, it seemed the term was used primarily to refer to the healthcare plan that is only available to our Congress, the President, and fat-cats on Wall Street and offered the ultimate coverage possible with no out of pocket expenses. However, as the debate has continued, the so-called "Cadillac” plans appeared to change to pertain to expensive policies that some people have – which it turns out are blue-collar workers. It’s these plans are under threat of being taxed at a high rate some have estimated at 30%.

Since it was getting confusing, I wanted some clarity as to what a "Cadillac healthcare plan" was and did my own research to see what I could find out.

A "Cadillac" healthcare plan, sometimes called a "gold-plated" insurance plan, is one that can have expensive coverage where the insured may might have low deductibles and high benefits and even provide coverage for the most expensive treatments, but more often it is defined by the total cost of those premiums rather than what it might cost the insured for healthcare. Premiums for the "Cadillac" plan can be high for reasons other than cost of benefits. Some of these factors include the age, gender, and overall health status of the individual as well as regional healthcare costs.

In my research, I found that in employer-sponsored healthcare plans, the premiums paid by employees are based on the pooled risk. Risk means that there are older employees, or many employees who may have chronic illnesses, or a predominantly female workforce, or the company could be located in a region where healthcare costs are just more expensive. In these “risky” cases, people might pay "Cadillac" rates but have "clunker" coverage. So, some people are paying higher premiums for their health insurance simply because of where they live or who they work with.

Washington's answer (as it is with most issues) is to impose a tax on the premiums of healthcare coverage. But that would hurt millions of people: small businesses, those who work in small businesses, and those who are self-employed. If healthcare premiums are taxed, the working class, the majority of whom already live modestly, would be hit the hardest.

These proposed taxes on premiums is supposed to penalize the insurers, but as everyone knows insurers will likely “trickle down” those taxes to consumers in the way of higher deductibles or less coverage or a combination of both in order to recover the additional taxes they are required to pay. But taxing premiums is only one option being discussed. Some lawmakers are pushing to tax benefits, and a few are wanting to tax both. And should you wonder why – those healthcare taxes would raise billions upon billions of dollars for the government.

As healthcare costs have risen over the last several years, of course people have had to pay higher deductibles and higher premiums. The Kaiser Family Foundation says that this year, the total cost of the policy for an average family of four offered by employers was $13,375 annually.

As an example, let’s consider a blue-collar employee who has the opportunity to have healthcare coverage through an employer-sponsored plan for the employee and spouse only. The employee could choose a plan with low co-pays and low deductibles if they wanted to, but because their health is very good and the premiums among the lowest offered, they opted for a high deductible plan. That means that prescriptions and doctor visits will be paid out of pocket until a maximum out of pocket amount is reached … so basically, the policy covers “catastrophic” needs... at an annual cost of $12,168. This is certainly no “Cadillac” version.

However, under Senator Baucus' bill which sets the minimum threshold for taxing premiums at $8000 annually, assuming the “trickle down” theory comes into play, this couple would have to not only “absorb” the out of pocket expenses for prescriptions and doctor visits until their maximum out of pocket threshold is met, but as provided under the Baucus plan, they would incur an additional out of pocket expense of more than $1,400 annually in the taxes conveyed into increased deductibles or less coverage – or premium costs – oh, no! So, how will this help the working class? (The assumption here is that the approximately 1/3 of amount which exceeded the $8,000 minimum for the above example will be due in taxes and that will be passed on to insured.)

Companies who "self-insure” would be required to pay an “excise tax” which means they would most likely have to pass that tax on to their workers in the form of either higher premiums or lower wages. Employers who presently pay or contribute to “Cadillac” premiums and who have a sicker workforce may see costs go down since all of the proposals in Baucus’ bill prohibit insurers from charging higher rates based on health status of the workforce. But I wouldn’t count on that! More than likely regardless of “Cadillac” or “clunker” policy, it’s going to cost the working class more so that those who aren’t working can be covered. How’s that helping the majority of the population, the working middle class?

The goal of the Senator Baucus’ plan is twofold. One is to generate revenue to help pay for covering the uninsured (that would be those who aren’t working?) and the other is to make the more expensive plans less desirable. The minimum tax thresholds would increase as inflation rates goes up. Historically, health insurance costs generally increase faster than inflation. So, more plans, not just the “Cadillac” versions, but modest healthcare plans as well could end up being taxed. Again, how does this help the working class?

I haven’t taken up Obama’s policy of penalizing those who do not get and keep health insurance coverage. I’ll leave that for another time because that’s a huge can of worms. But I will say that after researching this healthcare reform issue, I'm wondering about one thing: the term “Cadillac” in reference to healthcare reform that our elected officials are using. Does this mean that the governmental plans for reform in healthcare will go the way of the reform in the automotive industry?

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