Obama Urges Excise Tax on High-Cost Insurance

By David M. Herszenhorn
The New York Times
January 6, 2010

President Obama told House Democratic leaders at a meeting on Wednesday that they should include a tax on high-priced insurance policies favored by the Senate in the final version of far-reaching health care legislation, aides said.

The White House has long expressed a preference for the excise tax on high-cost plans, which health economists say could be an important tool in controlling long-term health care spending for the government and for individuals and families.



Taxing Cadillac Health Plans May Produce Chevy Results

By Jon Gabel, Jeremy Pickreign, Roland McDevitt and Thomas Briggs
Health Affairs
December 3, 2009 (online)

It’s often assumed that high-cost health insurance plans — sometimes called “Cadillac” plans — provide rich benefits to plan subscribers. Health reform provisions that treat these plans like luxuries may be misguided. Only 3.7 percent of variation in the cost of family coverage can be explained by benefit design (actuarial value). Benefit design plus plan type (HMO, PPO, POS, or high-deductible plans) explains 6.1 percent of this variation. Industry type and medical costs in the region also play a role. Most variation in premiums, however, remains largely unexplained.

Our inquiry suggests, however, that analysts should not equate high-cost plans with Cadillac plans, but that in fact other factors — industry and cost of medical inputs — are as important in predicting whether a plan is a high-cost plan. Without appropriate adjustments, a simple cap may exacerbate rather than ameliorate current inequities.



Nation’s Largest RN Organization Blasts Bid to Tax Benefits…

National Nurses United
Press Release
January 6, 2010

The nation’s largest union and professional organization of registered nurses today called on House members to hold the line in opposing a tax on workers’ healthcare benefits.

“It is unconscionable that workers and families with employer-sponsored health plans, who receive virtually no benefits from the proposed legislation, would have their health coverage taxed and seriously eroded,” said Deborah Burger, RN, co-president of the 150,000 member National Nurses United, formed last month through a unification of the California Nurses Association/NNOC, United American Nurses, and the Massachusetts Nurses Association.

“Advocates of the tax have made clear their intent: to force working people into cheaper, high deductible plans that provide less coverage and shift more costs to employees. The inevitable effect will be more people skipping needed medical care, enduring much higher out-of-pocket costs and risking financial ruin due to medical bills,” said NNU Co-president Karen Higgins, RN.

“Enactment of the tax, whose central premise is to control healthcare costs by reducing utilization of needed medical care while failing to control the pricing practices of the healthcare industry, would symbolize a central failing of the proposed legislation, ceding far too much to the insurers and the rest of the healthcare industry,” Burger added.


What is the deal on the excise tax on high-premium “Cadillac” health plans, and why is President Obama pushing this tax so vigorously in the final stages of enacting health care reform?

Well, he is pushing it because his advisers tell him that it would help to achieve his first and foremost goal of slowing the increase in health care spending. The rhetoric being used implies that taxing high-premium plans would reduce the waste of paying for extravagant, non-essential benefits that are of little practical value. We’ll first dismiss this misperception and then follow with an explanation of why this form of cost management results in detrimental health outcomes.

The so-called Cadillac plans are merely plans with high premiums. The Health Affairs article by Jon Gabel and his colleagues demonstrates that only 3.7 percent in the variation in premiums can be explained by the actuarial value inherent in the benefit design. In most instances, the higher premiums are not due to “Cadillac” benefits, but they are due to other factors, such as the type of industry providing the employment and the medical costs in the region. In most instances, the higher premiums cannot even be explained. We can speculate that our reliance on our dysfunctional system of financing care through relatively unregulated private insurer pricing may be the most important culprit in providing Chevy plans at Cadillac prices.

So if the excise tax is going to push premiums down anyway, how could this be detrimental? Employers will not want to pay the excise tax, so they will demand from the insurers premiums that are at or below the tax threshold. Insurers will not simply reduce the premiums and continue to offer the same benefit packages. They will lower their benefits, lowering the actuarial value of the plans. There is absolutely no doubt that high and ever-increasing deductibles will be the norm.

A plethora of studies has demonstrated that individuals with high-deductible plans reduce their use of beneficial health care services. Although the RAND HIE data has been inappropriately misused to suggest that a reduction in beneficial services causes no harm, in fact many other studies have shown that health outcomes are worse when people don’t receive the health care that they should have.

The philosophy of controlling health care spending by shifting the financial burden to individuals and families is the most serious defect in the legislation before Congress. The excise tax on high-premium plans is only an example of this shift. The most glaring example is that the national standard proposed for basic plans has an actuarial value set at the unacceptably low level of 70 percent or even less. Making insured individuals pay money they don’t have to access care that is unaffordable is the worst way to control health care spending, that is, except for designing a program that deliberately leaves tens of millions of individuals with no insurance at all, just to satisfy budget hawks who understand only spending and not revenues.

Instead of enacting cruel policies that negatively impact patients on the demand side of the equation, we need to enact policies on the supply side that would benefit patients – all patients. That is precisely what a single payer national health program would be designed to do.

Isn’t it time that we told the lobbyists for the special interests and our elected leaders who revere them where they can stuff their Cadillacs?