Will Taxing 'Cadillac Plans' Hold Down Health Costs?

Some people have insurance that is so generous the coverage is called a "Cadillac plan." There are those who believe these kind of gold-plated medical coverage should be taxed. Some economists believe the generous plans encourage people to overuse health care, and taxing them is one way to hold down costs.

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LINDA WERTHEIMER, host:

Our series Are You Covered is produced in partnership with Kaiser Health News, a nonprofit news service. It's an editorially independent program of the Kaiser Family Foundation which is not affiliated with Kaiser Permanente. Also working with us as part of this series is NPR's Julie Rovner and she's with us in the studio. Julie, under these so-called Cadillac plans, what would happen to the Lovells and the Stabbes under the bills being considered in Congress right now?

JULIE ROVNER: Well, their health insurance plans would probably only be directly affected by one of the bills under consideration. That's the bill that's before the Senate finance committee and it actually starts work today on that bill. The bill would impose an excise tax on health plans that are sponsored an insurer that exceed a certain value, and this wouldn't start until the year 2013, and by then, the tax would start on plans that cost more than $8000 for an individual and more than $21,000 for family coverage. So there would be a tax on the amount over those thresholds for those types of plans. So it'd be only the most expensive plans starting in the year 2013.

WERTHEIMER: But who pays the tax? The insured, or those providing the insurance? Who?

ROVNER: Well, the way it's written, the tax is technically levied on the health insurance plan, but the reality that everybody knows is what's going to happen is that tax would pass through - first to the employer, and the employer then would either pass through the workers via higher premiums through them or lower wages, or what everybody assumes will happen is the employer will simply stop offering such generous coverage.

WERTHEIMER: So in other words, it's just kind of a back door way to tax employer health insurance, the kind of thing we've been hearing about - we heard about it in the presidential campaign.

ROVNER; It absolutely is. Now again, these are only what we call these so-called Cadillac plans, them most expensive with the most generous benefits. The idea is that taxpayers shouldn't be subsidizing plans at the very high end. But there is a recognition, as we've seen with these families, that many workers have given up wages to get these generous benefits and many states simply have higher costs for health insurance. So plans that are not all that generous, might get caught inadvertently by this tax. The bill, as it stands now, gives 17 states in which health care was deemed, quote, "least affordable," special dispensations, they would have higher thresholds, at least at first, before the tax kicked in.

WERTHEIMER: Do you think this is going to happen?

ROVNER: It's still extremely controversial. I image there will be a lot of heated debate as the finance committee goes forward, but a lot of economists say that the very existence of these very generous plans encourages people to overuse health care and this is one important way to start holding down health care costs, although as we've seen, for many people these plans are literally lifesavers.

WERTHEIMER: NPR's Julie Rovner, thank you very much.

ROVNER: You're very welcome.

WERTHEIMER: Later today on All Things Considered, Julie has the next report in our series Are You Covered? It's the story of a woman with breast cancer who had private insurance when she first underwent treatment. Years later when the disease came back, she was treated under Medicare. We'll hear about both experiences.

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