Cadillac insurance plan
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Informally, a Cadillac plan is any unusually expensive health insurance plan, usually arising in discussions of medical-cost control measures in the United States. The term derives from the Cadillac automobile, which has represented American Luxury goods since its introduction in 1902, and as a health care metaphor dates to the 1970s. The term gained popularity in the early 1990s during the debate over the Clinton health care plan of 1993, and was also widespread during debate over possible excise taxes on "Cadillac" plans during the health care reforms proposed during the Obama administration. (Bills proposed by Clinton and Obama did not use the term "Cadillac".)
As most Cadillac plans are sponsored by employers, economists generally believe that the widespread availability of these plans is at least partially attributable to the tax-advantaged status that employer-sponsored health plans currently have. Employer-sponsored health insurance is considered part of the employees' compensation package, but is not taxed as wages. This is thought to be essentially a government subsidy that encourages employers to offer, and employees to enroll in, more expensive plans that cover more of the cost of medical care, and then the employees use that subsidized medical care excessively because they are insulated from its full cost, according to some commenters.
A study published in Health Affairs in December 2009 found that high-cost health plans do not provide unusually rich benefits to enrollees. The researchers found that only 3.7% of the variation in the cost of family coverage in employer-sponsored health plans is attributable to differences in the actuarial value of benefits. Only 6.1% of the variation is attributable to the combination of benefit design and plan type (e.g., PPO, HMO, etc.). The employer's industry and regional variations in health care costs explain part of the variation, but most is unexplained. The researchers conclude "…that analysts should not equate high-cost plans with Cadillac plans, but that in fact other factors—industry and cost of medical inputs—are as important in predicting whether a plan is a high-cost plan. Without appropriate adjustments, a simple cap may exacerbate rather than ameliorate current inequities."
The Patient Protection and Affordable Care Act (PPACA, as amended by the Health Care and Education Reconciliation Act of 2010), imposes an annual 40% excise tax on plans with annual premiums exceeding $10,200 for individuals or $27,500 for a family starting in 2018, to be paid by insurers. The tax is not imposed on the total cost of the plan, but on the costs exceeding the aforementioned values, which, after 2018, will adjust to inflation annually. These costs include any part of a person's income allocated to flexible spending accounts, health reimbursement accounts, and health savings accounts, but not expenditures for stand-alone dental, vision, accident, disability, or long-term care insurance coverage. The tax is not a deductible business expense and so plan administrators pay income tax on the excise tax, significantly increasing the effect of the 40% tax. The tax is intended to do three things: help finance the PPACA; reduce overall health care costs; and address the unequal tax benefit of excluding employer-based health insurance coverage from taxes.
Although the tax plan was positioned to combat a "luxury", it is not indexed for the increasing costs of care. This means as healthcare costs rise, more employees' plans will be subjected to the tax. It also will impact, possibly eliminate, some healthcare savings accounts which are included in the plan cost calculation. A study from the nonpartisan Kaiser Family Foundation estimated 26 percent of all employers would face the tax in at least one of their plans in 2018 when the taxes are first implemented. Labor union have also opposed this tax because it would be "very disruptive" to their generous healthcare plans and have asked that their members to be eligible for the same federal subsidies available to low-income workers in the new health exchanges.
As of 2015, there is a bipartisan effort in Congress to repeal the 40% tax--H.R. 2050 introduced by Rep. Joe Courtney (D-CT) and H.R. 879 introduced by Rep. Frank Guinta (R-NH). In addition, the Alliance to Fight the 40, a broad based coalition of public and private sector employer organizations, unions, health care companies, businesses, and other stakeholders that support employer-sponsored health coverage, is working to repeal the 40% tax.
- Beam, Christopher (October 14, 2009). "Do I have a "Cadillac Plan"? An Explainer health care FAQ". Slate. Retrieved October 15, 2009.
- Abelson, Reed (September 20, 2009). "A Tax on Cadillac Health Plans May Also Hit the Chevys". New York Times. Retrieved October 15, 2009.
- Hit, Greg (September 26, 2009). "House Weighs 'Cadillac-Plan' Tax". Wall Street Journal. Retrieved October 15, 2009.
- Gold, Jenny (January 15, 2010). "'Cadillac' Insurance Plans Explained". Kaiser Health News. Retrieved March 22, 2010.
- Smith, Robert (October 18, 2012). "A Tax Plan That Economists Love (And Politicians Hate)". NPR. Retrieved November 19, 2014.
- Gabel, J.; Pickreign, J.; McDevitt, R.; Briggs, T. (2009). "Taxing Cadillac Health Plans May Produce Chevy Results". Health Affairs 29: 174. doi:10.1377/hlthaff.2008.0430.
- "Cadillac Tax Fact Sheet" (PDF). Cigna. Retrieved November 19, 2014.
- Milliman. "The ACA Cadillac tax: A primer for employers" (PDF). Benefit Perspectives. Milliman. Retrieved May 18, 2015.
- Piotrowski, Julie (September 12, 2013). "Excise Tax on 'Cadillac' Plans". Health Affairs. Retrieved December 19, 2014.
- "Approaching health law tax is not just a levy on luxury". MPR News. Retrieved 16 November 2015.
- "White House backs off ObamaCare deal for unions". Retrieved 16 November 2015.