Here we go again. Trying to decide which of the shitty health insurance "reform" options our legislators have tossed on the table we're willing to choke down.
But the fact of the matter is our legislators should be rewarding insurance companies for offering good affordable plans with good benefits and discouraging increased offerings of junk insurance instead. We're going about this all wrong. We should tax insurance companies for crappy insurance policies and offer tax breaks for policies that offer good benefits at affordable prices instead.
Why are we rewarding insurance companies for offering worse health care coverage?
Proponents argue that a Cadillac Plan is some gold-plated insurance offered only to the likes of top CEOS at Fortune 500 companies. Legislators in essence argue that we should tax plans that cost more (without so much as a passing glance at the benefits of those health plans), creating a race to the bottom in insurance coverage. Less cost = lower benefits and higher deductibles.
What is a Cadillac Plan?
The top-of-the-line plans—say, the $40,000-a-year plan offered to Goldman Sachs CEOs—likely have no copayments, no deductibles, few limits on how much you can spend, and no need for prior authorization, i.e., to get special permission before you get treated.
But many not-so-fancy plans also qualify as "Cadillacs" under the finance committee's definition. That's because the term refers to total cost—not a particular set of benefits—and many factors—like the state you live in, the size of your company, and the makeup of that company's work force—can affect costs. Premiums tend to be significantly higher in Massachusetts than in Idaho, for example. (The employer/employee contribution also varies by state.) The smaller the business, the fewer employees who go into the pool, the less leverage the organization has to negotiate lower premiums. And if the workers have an average age of, say, 54, their premiums are going to be a lot higher than if the average is 25.
A lot of basic benefits packages, then, can still qualify as "Cadillacs." (The Senate finance committee has made exceptions for workers with high-risk jobs like firefighters, whose premiums tend to be high.) The Joint Committee on Taxation has estimated that the tax would hit 14 percent of family health policies and 19 percent of individual policies in 2013, when the legislation would take effect. Those numbers would rise to 37 percent and 41 percent, respectively, by 2019, since premiums are expected to rise faster than inflation.
Yes, It is true that Goldman Sachs CEOs will be hit with a higher health insurance tax, but by focusing on the cost of those plans alone, look who else gets caught in the web: companies who have to pay higher rates because their workers are older and/or sicker. These companies will be forced to buy policies with higher deductibles and reduced benefits to avoid the tax. That's junk insurance.
By focusing on punishing insurance companies (through taxation) for the cost of premiums as opposed to rewarding insurance companies for offering policies with good benefits, we are traveling down the wrong icy road.
The tax will do nothing to make providers more efficient or effective in their use of system resources.
Nor will it force insurers to be more circumspect in what they will pay for. Ever since the patients rights rebellion of the late 1990s, they have become nothing more than pass-through agents in the system, taking their cut off the top. That's what they'll do with the tax -- pass it along to employers, who in turn will pass it along to their employees.
The economists who argue for this tax ignore all the dysfunctional realities of the health care "marketplace" that I have just described. Those realities make cost control measures that rely on incentive tinkering -- and this tax is a prime example -- doomed to failure.
The Senate's tax plan is way off the mark. We are poised to place a tax on insurance policies that offer good benefits and reasonable copays and reward insurance companies for offering more junk insurance policies. This is not smart on any level, for either the short term or the long term.