You and Your Cadillac Health Plan

Coming to a health plan near you: an excise tax on those so-called Cadillac high-premium, high benefit plans which some federal workers and retirees love. But b...

Take the internet, a little hype and a massive complex and confusing law (Health Care Reform) and you’ve got all the ingredients for the Perfect Storm Urban Myth. With some truth to it!!

In this case the buzz is about the coming excise tax on so-called Cadillac health plans, including those in the Federal Employee Health Benefits Program, the nation’s largest.

Many people like the high-premium plans because their coverage is often superior to lower-premium plans. Many politicians and policy-makers think the plans encourage people to overuse expensive medical services, thereby driving up costs, they say, for everybody. So the administration’s new health care plan proposes to discourage people from choosing high-premium, high-benefit plans by imposing an excise tax on them.

Since passage of the law lots of people have sent out “warnings” about the impending tax. Some have been confused, or have the wrong dates of implementation and premium-thresholds. Some have been flat out wrong, apparently on purpose.

After a number of readers sent is e-mail alerts they had received we checked it out, and got the right dates and the correct numbers.

But some people wanted more, or a clarification as to what the experts say.

So we went to Walton Francis. He’s a retired official at HHS and the long-time author of CHECKBOOK’s Guide to Federal Health Plans.

Here’s his take:

    “The reality is that the ‘Cadillac plan’ tax will likely rarely be paid. Plans will redesign their benefits, coinsurance, deductibles, etc. to stay below the taxable amount. In that case, the reduced availability of ‘free’ or near-free health coverage will reduce wasteful spending by changing consumer incentives as well as physician behavior. This effect is virtually the only ‘bend the curve’ part of the health reform package and one scored by the CBO as saving a good deal of money over time. Even if some plans do pay the excise tax, it would be doubtful that they could pass it on to consumers. In the FEHBP, in particular, enrollees can simply use Open Season to enroll in a more frugal plan where their premiums aren’t wasted on the tax. In the insurance market at large, health exchanges will offer more frugal plans that consumers will choose. Another possible scenario, and quite a likely one, is that the Congress will defer or soften the tax rather than let it impact voters substantially, similar to the annual ritual of postponing the alternative-minimum tax hit.

    “All this is really a digression from the issue at hand, however. The fact is that requiring companies to show tax-exempt health benefit amounts on W-2s will not subject those benefits to taxation. That is pure ‘urban legend.’ Instead, the purpose of this requirement is to inform consumers as to how much of their paycheck is devoted to an earmarked benefit rather than allowing them to spend on the priority of their choice, such as better housing or a college education for their kids. It is unambiguously desirable that consumers be better informed on the immense cost of health benefits and more informed consumers will, if we all are lucky, help put additional pressure on wasteful spending.” W.F.

How’s Your Ticker?

You may or may not have noticed over the past few days that the numbers in the TSP ticker on our homepage, may have seemed a bit off for the L funds. The guys with the duct tape holding their glasses together tell me the “script has been rewritten” and everything should be fine now. Of course, if you happen to notice that it’s not, please let us know! And thanks.

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