Taxing Cadillac Health Insurance Plans May Lower the Health Insurance Costs Overall Posted: December 15th, 2009

Taxing cadillac health insurnace plans, with rich benefits and high costs, may help raise revenue and lower health insurance plan costs overall.

The US Senate has included, in its version of the health care overhaul, a provision to impose an excise tax on so called Cadillac health insurance plans. These plans have been given this nickname since they are rich in benefits and high in cost.
The provision would impose a 40% excise tax on health insurance premiums above $8,500 for individuals, and $23,000 for families.
This would represent a major departure from current policy because employer sponsored health insurance is exempt from both employer payroll and individual income taxes.

Raising Revenue to Pay for Health Care

According to the Congressional Budget Office (CBO), the tax would raise an estimated $149 billion by 2019, which would be used to offset the projected $848 billion cost of the reform package.

Reducing Health Care Costs

Those favoring the measure believe that it may help bring about cheap health insurance by curbing rising health care costs. The tax might make consumers more aware of their health care costs, and discourage insurance companies from offering such rich plans with little or no co-payments, deductibles or exclusions from coverage.

The expectation is that the new tax may cause both employers and employees to seek out cheaper plans, with fewer benefits, in order to avoid the tax.

Opponents of the Tax

Opponents suggest that the tax may not help bring about cheap health insurance. They argue that the cost of the tax is likely to be passed on to working families. Companies may do this by either lowering wages or purchasing cheaper plans with higher co-payments and deductibles.

They also note that the tax is more likely to affect workers in certain high cost areas of the country. Health insurance plan costs are higher in certain locations, even if the benefits are comparatively lower than in other locations.

These opponents include union members, many of who have given up wage increases in return for generous health insurance plans, as well as high level executives who have extremely rich plans.

The final bill is still open to debate and it is not known at this time whether it will or will not include this proposed tax.

Sanford Ellowitz