FacebookTwitterGoogle+RedditEmail

The Myth of "Cadillac" Health Plans

by BILL SALGANIK

The theory behind the so-called “Cadillac tax” on high-premium health plans is that people like Betty Diamond have too much health insurance, which causes them to get more medical care than they need.

And if people like Diamond had thinner health care benefits, the theory continues, their bosses would pass the savings along in nice wage increases.

But after serving on two bargaining committees—and surviving two cancers—Diamond, a technician at an AT&T data center in Miami, says the theory is off base.

The health reform bill which passed the Senate in December would impose a 40 percent excise tax on health insurance plans with premiums above $23,000 a year for families and $8,500 for individuals. The tax would hit insurers and big self-insured employers—who would force them onto workers.

The House’s health reform bill doesn’t tax benefits; it would finance health reform by increasing income taxes for households making more than $1 million a year or individuals making more than $500,000. Over the next weeks, House and Senate leaders have to bridge their differences and craft a consensus bill, with taxes as one of the major unresolved issues.

It’s not just Diamond’s life experience that pokes holes in the “Cadillac tax” argument. A series of research studies also shows that the tax is based on faulty assumptions.

There are three key ideas put forward in support of the benefits tax—the tax will hit only lavish plans, it will help bring down health costs, and employers will pass the cost savings directly into wages.

All are wrong.

The myth of rich-benefit “Cadillac” plans is the first flaw in the theory. By 2019 the benefits tax would hit one-fifth of households making between $50,000 and $75,000 a year, according to figures from the Congressional Joint Committee on Taxation. The tax would pose a heavy burden on working families.

Studies by the Economic Policy Institute and for the policy journal Health Affairs show that plans with big premiums don’t necessarily have big benefits.

Rather, high premiums go with an older workforce (like Diamond, a 40-year employee), because older people use more medical services. Smaller employers are also more likely to be affected; they pay, on average, 18 percent more than large employers for the same benefits, according to the White House Council of Economic Advisers. And health costs also tend to be higher for women, so work groups that have large female representation—such as teachers, nurses and telephone call center employees—are more likely to be taxed.

Diamond is also more likely to be hit by the tax because of where she lives. An average family policy in Miami costs more than $20,000 a year—meaning the average policy comes close to the “Cadillac” definition in the Senate’s legislation—while a policy with the same benefits in Phoenix costs less than $15,000, according to the actuarial consulting company Milliman. The difference has nothing to do with “Cadillac” benefits. It’s a function of prices and medical practice styles in the different markets.

Betty Diamond’s coverage, negotiated by the Communications Workers with AT&T, is good, but hardly lavish. She had to pay hundreds of dollars out of pocket a few years ago when she had cancer surgery. And she pays nearly $1,000 a year out of pocket for prescriptions; her cancer exams also turned up a hereditary problem with her lungs, which requires her to take medicine to avoid dangerous blood clots. She goes for regular checkups to her oncologist to make sure the cancer is still in check, with a co-payment that’s going up this year, from $20 to 10 percent of the charges, under the new CWA contract.

Second, supporters say the tax would hold down health costs by pushing employers into less expensive plans. If there were cheaper plans out there that offered equivalent benefits, opponents counter, employers would already be in them. Instead, the only way employers can make plans less expensive is by cutting benefits—and that’s what nearly two-thirds of employers plan to do, according to a survey by Mercer, a benefits consultant. And that means higher co-pays and deductibles.

Ah, say supporters of the tax, if consumers face higher out-of-pocket costs, they’ll cut out unnecessary care and shop for better prices. Studies show that consumers do use less care when they have to pay more, but they cut back on necessary as well as unnecessary treatments.

That can lead to higher costs down the road. For example, one study tracking higher co-pays for office visits and prescriptions found that workers did cut back—but that savings were offset by higher hospital admissions, especially for older workers and those with chronic health problems.

Even with higher co-pays, Diamond says that, having survived cancer twice, she’s not about to skip an oncology checkup, never mind pass on needed surgery. Nor should we want a health policy that will force her to.

“Personally, I don’t go to the doctor unless I have to,” she says. But, mindful of her life-threatening medical conditions, “I tend to do what the doctor tells me.”

Third, supporters of the benefits tax also say that people like Diamond don’t have to worry about a tax on benefits. Sure, the employers would trim benefits but wages, they say, would go up as health costs came down.

A report from the Economic Policy Institute tracking health costs and wage growth over the past 20 years concluded that isn’t so. While there’s some connection between wages and benefit costs, employers are more likely to keep any savings for themselves rather than pass them on to workers, especially in an economy with high unemployment.

Betty Diamond didn’t need a study to tell her that. She’s served on two CWA bargaining committees where her employer fought hard to keep health costs down. And neither time did management offer to pass the savings back to the workers in extra pay hikes. “Absolutely not. Please,” Diamond says—when she stops laughing at the idea.

And while this isn’t a great time for unions in bargaining, at least organized workers have some leverage. “They never give you anything,” Betty Diamond says. “You only get what the union bargains for. And they wouldn’t give it to you if the union wasn’t there.”

BILL SALGANIK is a member of CWA Local 32035, the Washington-Baltimore Newspaper Guild, and does writing and research for a CWA Web site, www.healthcarevoices.org.

This article originally appeared in Labor Notes.

More articles by:
May 24, 2016
Dave Welsh
Police Chief Fired in Victory for the Frisco 500
May 23, 2016
Conn Hallinan
European Union: a House Divided
Paul Buhle
Labor’s Sell-Out and the Sanders Campaign
Uri Avnery
Israeli Weimar: It Can Happen Here
John Stauber
Why Bernie was Busted From the Beginning
James Bovard
Obama’s Biggest Corruption Charade
Joseph Mangano – Janette D. Sherman
Indian Point Nuclear Plant: It Doesn’t Take a Meltdown to Harm Local Residents
Desiree Hellegers
“Energy Without Injury”: From Redwood Summer to Break Free via Occupy Wall Street
Lawrence Davidson
The Unraveling of Zionism?
Patrick Cockburn
Why Visa Waivers are Dangerous for Turks
Robert Koehler
Rethinking Criminal Justice
Lawrence Wittner
The Return of Democratic Socialism
Ha-Joon Chang
What Britain Forgot: Making Things Matters
John V. Walsh
Only Donald Trump Raises Five “Fundamental and Urgent” Foreign Policy Questions: Stephen F. Cohen Bemoans MSM’s Dismissal of Trump’s Queries
Andrew Stewart
The Occupation of the American Mind: a Film That Palestinians Deserve
Nyla Ali Khan
The Vulnerable Repositories of Honor in Kashmir
Weekend Edition
May 20, 2016
Friday - Sunday
Rob Urie
Hillary Clinton and Political Violence
Andrew Levine
Why Not Hillary?
Paul Street
Hillary Clinton’s Neocon Resumé
Chris Floyd
Twilight of the Grifter: Bill Clinton’s Fading Powers
Eric Mann
How We Got the Tanks and M-16s Out of LA Schools
Jason Hirthler
The West’s Needless Aggression
Dan Arel
Why Hillary Clinton’s Camp Should Be Scared
Robert Hunziker
Fukushima Flunks Decontamination
David Rosen
The Privatization of the Public Sphere
Margaret Kimberley
Obama’s Civil Rights Hypocrisy
Chris Gilbert
Corruption in Latin American Governments
Pete Dolack
We Can Dream, or We Can Organize
Dan Kovalik
Colombia: the Displaced & Invisible Nation
Jeffrey St. Clair
Fat Man Earrings: a Nuclear Parable
Medea Benjamin
Israel and Saudi Arabia: Strange Bedfellows in the New Middle East
Ted Rall
Trump Isn’t Bluffing, He’ll Deport 11 Million People
Kent Paterson
Death in a Shopping Aisle: Jonathan Sorensen’s Fatal Encounter with Kmart
Lisa Sullivan
Venezuela’s Crisis From Up Close
Clancy Sigal
Trump’s Rasputin: What the Donald Learned From Roy Cohn
Manuel E. Yepe
Think Tanks and the US Power Elite
Kathleen Wallace
$25 vs $30, Hats Off to the Two-Party System!
Terry Simons
Mob Politics: the Democrats Have a Problem and It’s Not the Sandernistas
Franklin Lamb
U.S. Financial Regulations Increase Starvation Among Syria’s Children
James Cronin
The Pope and Mercy: the Catholic Church has not Abandoned Its 400 Year War on Science
Linn Washington Jr.
Islamophobia on the Rise in England
Thomas Mountain
25 Years of Struggle Building Socialism in Eritrea; Fighting the Cancer of Corruption
David Wilson
Who Speaks for the Refugee Children of Calais?
Michael Welton
Terry Eagleton: the Cheeky Marxist
David Mattson
Disserving the Public Trust: the Despotic Future of Grizzly Bear Management
FacebookTwitterGoogle+RedditEmail