'Cadillac' Insurance Plans Explained
Policy + Politics

'Cadillac' Insurance Plans Explained

Congressional leaders and union representatives increased the likelihood a tax on high-cost insurance policies will be included in the Democrat's final health overhaul legislation

As negotiators work to reconcile the differences between the House- and Senate-passed health bills, a deal reached Jan.14 by the White House, congressional Kaiser Health Newsleaders and union representatives increased the likelihood a tax on high-cost insurance policies will be included in the Democrat's final health overhaul legislation. Here is a brief guide to these types of insurance plans.

What is it, and what does it offer the consumer?

Sometimes referred to as a "Cadillac" or "gold-plated" insurance plan, a high-cost policy is usually defined by the total cost of premiums, rather than what the insurance plan covers or how much the patient has to pay for a doctor or hospital visit.

People who have Cadillac plans often have low deductibles and excellent benefits that cover even the most expensive treatments, but this is not always the case. Premium costs can be high for reasons other than generous benefits, including the age, gender and health status of the customer. In an employer-based plan, premiums are based on the pooled risk of employees and may be higher if many of the employees are sick, older, female or live in a region with expensive health costs.

Who has high-premium plans?

Although news accounts have frequently described Cadillac coverage as plans catering to Wall Street titans, with annual premiums of $40,000, not everyone with high-cost coverage is very wealthy or even especially well off.

Some union workers and employees of businesses with a preponderance of older or sicker workers may also have premiums in the Cadillac range.

In the health bill passed by the Senate, a high-premium health plan is defined as costing more than $8,500 for an individual or $23,000 for a family. The cost includes health and dental benefits, along with worker and employer contributions to flexible spending or health savings accounts. In an analysis released Nov. 30, the Congressional Budget Office predicts that in 2016, 19 percent of workers who have insurance through the workplace would fall under that category.

The agreement between the White House and labor leaders reportedly would increase the premium thresholds to $8,900 for an individual and $24,000 for a family. In addition, beginning in 2015, the cost of separate dental and vision benefits would not be included in this premium threshold calculation. Additionally, the tax reportedly would not be imposed until 2018 on state and local government employee plans and collectively bargained plans.

This year, the total cost of the average family policy offered by employers was $13,375, according to the Kaiser Family Foundation.

What effect would the Cadillac provisions in the health overhaul proposals have?

The health bill passed by the Senate would tax insurers for policies with premiums above the thresholds. The goal of the provision is twofold: to generate revenue to help pay for covering the uninsured (the Congressional Budget Office estimates the tax would raise about $149 billion over the first 10 years); and to make the most expensive plans — which some argue encourage overuse of medical care — less attractive. The recent White House accord would lower significantly lower the amount of revenue generated by the tax.

The thresholds would increase as the nation's overall rate of inflation goes up. But since health insurance costs increase much faster than inflation, more plans could end up being taxed as time goes on, if nothing else changes.

Although the tax is to be imposed on insurers, the effects are likely to trickle down to consumers. Insurers or employers might tinker with benefits, for example, by increasing deductibles to reduce premium costs to below the threshold. In addition, more than half of employees with insurance work for companies that "self-insure," meaning the firms pay for their workers' health bills on their own. These employers would be required to pay the excise tax themselves and most analysts, including the CBO, estimate that businesses will respond by redesigning benefits to have lower premiums, higher deductibles and copayments and terminating employer contributions to health and flexible spending accounts. But economists say employers may pass the savings to workers in the form of higher wages.

For workers in high-risk professions, for example firefighters and longshoremen, the Senate bill would set a higher threshold, as it would in the 17 states with the most expensive average health care costs. This provision is reflected in the White House agreement, according to news accounts.

Some employers whose coverage is expense because they have a sicker workforce may see their premiums decrease if other proposed reforms take effect that prohibit insurers from charging higher rates based on health status.

The House-passed bill did not include a tax on high-premium health plans.

This story was done in collaboration with our partner NPR.

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.