http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/13/BU3919LRDF.DTL
Kathleen Pender
Sunday, September 13, 2009
In his speech on health care reform last week, President Obama endorsed a plan to charge insurance companies a "fee" on their "most expensive policies."
In other words, Obama likes the idea of taxing what have been termed gold-plated, or Cadillac, health plans.
This concept, which has been kicking around for years, is not in any of the health reform bills, but it is in the 18-page "framework" for health reform that Senate Finance Committee Chairman Max Baucus, D-Mont., submitted to the bipartisan Gang of Six senators last week. Baucus is likely to include it in the bill he plans to introduce this week, if it can overcome certain concerns.
While the plan appears to target top executives who pay virtually nothing for health care, it could hit many lesser-paid people, especially union members.
It's unclear whether the plan's main goal is to raise revenues to pay for health care reform or to discourage overly generous health care. The more it does of the latter, the less it will do of the former.
The Baucus plan would impose a 35 percent excise tax on policies that cost more than $8,000 a year for singles and $21,000 a year for families. It would apply to self-insured plans (offered by employers that pay for claims themselves) and group policies, but not to plans sold in the individual market. The tax would apply to the amount of the premium over the threshold.
The threshold would be indexed for inflation, but the plan did not say what rate would be used. A higher threshold would apply for the first three years in the 17 highest-cost states.
The plan doesn't say when the tax would take effect, but it is assumed to be 2013 because that's when the revenues will be needed to pay for new health care spending.
Tax philosophies
Some people believe that employees should pay income tax on the value of medical coverage they get from their employers, or at least on the value over a certain amount, as they do for group life insurance.
But rather than taxing employees who receive Cadillac coverage, the tax in the Baucus plan would apply to insurance companies that sell or administer such plans.
"It's hard to sell a plan that taxes people, some of whom are in the middle class," says Mark Luscombe, principal tax analyst with CCH. "If he puts the tax on the company, it's an easier sell. We all think the cost would be passed on anyhow."
Linda Havlin, a partner with Mercer Health & Benefits, says the tax plan originally targeted executive policies that might cover 100 percent of the employee's deductible, co-insurance and even some care that is normally excluded. But these plans have been fading away, especially during the recession, she says.
The plans most likely to be hit by the Baucus tax are union plans where workers traded pay for benefits, plans for older workforces and those in high-cost areas, she says.
Average premiums
Today, most plans are well below the thresholds in the Baucus plan. In 2008, the average annual premiums for employer-sponsored health insurance were $4,704 for single coverage and $12,680 for family coverage, according to a study by the Kaiser Family Foundation.
The Segal Co. says the average premiums for a sample of union plans it consults with are $5,150 for singles and $13,359 for family coverage.
A study by the conservative Heritage Foundation, using data from the government's Medical Expenditure Panel Survey, estimates that average premiums in 2010 will be $8,034 for singles and $14,298 for families.
By 2013, when the tax presumably would take effect, many more plans would go above the limit as inflation pushes premiums up. How many more depends on whether the tax would be indexed to overall inflation or to medical inflation, which has been much higher.
There is talk that the union plans could be exempted from the tax, at least until their current contracts run out. But without unions, significant tax revenues would be lost.
How much money?
The Baucus plan does not say how much the tax would generate. A spokeswoman for the finance committee refused to confirm media reports that put it between $150 billion and $200 billion.
Obama said the tax would encourage insurers "to provide greater value for the money." But if insurers simply cut premiums below the tax threshold and also cut benefits, employees will be no better off and tax revenues will disappear.
This plan does not reform health care or the tax system, says Ed Haislmaier, senior research fellow with the Heritage Foundation. "We have a system today where you get generous tax breaks if you get health care through your employer. The larger your tax bracket, the bigger your tax break," he says. "We would scrap that and replace it with a system that says you get a tax break no matter where you get health insurance and it would be the same amount no matter how much you make."
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com. Read her blog at sfgate.com/blogs/pender.
This article appeared on page D - 1 of the San Francisco Chronicle
