Michael Brewer

Cadillac or Cab: Is Your Health Plan Driving an Excise Tax?



Posted: Thursday, January 21, 2010

by Michael Brewer
Communicatia, Inc.

Try as it might, General Motors sure can't catch a break.

After filing for bankruptcy last year, enduring massive layoffs and putting some of thier one-time flagship brands out to pasture, Congress has taken one of its rugged White Knights on wheels and drug it slowly through the thick, verbal mud that is healthcare reform. No one can get enough of the "Cadillac plans," so named by the healthcare industry because of their top-of-the-line features: no copayments, no deductibles, no pre-authorizations for medical care and very little exemptions on what the sponsoring insurance company will cover. At least that's what a Cadillac plan used to come equipped with, when the term was first coined.

Maybe in 1970, when Caddys were the size of a Russian submarine, were health insurance companies offering such generous benefits to those who were willing to pay for them. Remember back then though, no one had heard of Lexus and a BMW was reserved for those who could personally sail to Germany via cargo boat and pick one up. Today's Cadillac is no doubt tarnished, but it's still an attractive alternative to other American automobiles. That could be precisely why Congress is redefining what a Cadillac plan is (or what it could be) when figuring outhow to pay for healthcare reform.

Like back in the day when you could special order any and every option on a Cadillac at the dealership --- "you want red bucket seats, but no tilt steering wheel, no problem!" --- Congress has decided to simplify things. You will be assessed a tax on your health insurance plan based not on what features your plan has, but on how much it costs. On one hand, logic suggests health plan costs would be related to how many benefits your specific plan has. But logic has rarely mattered in the healthcare debate. The problem with this scenario is that many of you may be driving a Cadillac health insurance plan without even knowing it. The threshold for a Cadillac health insurance plan is about as high as a Volkswagen.

The latest estimates suggest that some 14 percent of all family health plans be taxed under the proposal. What's more, even though the tax will be assessed to the insurance company that writes the policy (.40 for every dollar an issued plan costs above $8,000 for individuals, $21,000 for families), these costs will probably wind up tacked on to your premium as a "regulatory fee," of some sort, much like your cell phone or cable television bill.

If you're employed and covered under a group health plan, you may be surprised to find that your coverage (however basic it may be) is suddenly a luxury car(d) you can't afford to keep. Individual health plans , on the other hand, often provide more comprehensive coverage for a surprisingly low premium. Depending on what state you live in and your current health status, it may pay to consider driving a better bargain rather than getting taken for a ride with an unexpected tax in the very near future.

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