As Proposed, Tax on Cadillac Plans May Be A Non-Starter

Lawmakers should be careful about imposing an excise tax on health insurers whose so-called Cadillac plans cost more than $8,750 for an individual, or $23,000 per year for a family.

The proposal under consideration by the Senate Finance Committee makes a big mistake in treating the value of those plans as if they are the same—regardless of the groups that those plans cover.

That's the message from Robert Dobson of Milliman, Inc., a large actuarial and consulting firm specializing in health plan and cost analysis.

That's because the actual value of the services a plan provides depends not so much on its price tag, but on the age, gender, profession, health status, and location of the covered population.

For example, Dobson writes in a recent paper, "No Room to Stand," the cost of an employer-sponsored plan for a typical family of four in Miami is $20,282 in 2009. But caring for a similar family in Phoenix costs only $15,000. That's because Miami has the most expensive costs for providing healthcare while Phoenix has the least expensive costs.

This shows "how much more susceptible certain areas of the country are to hitting a fixed-dollar excise tax threshold, such as $21,000," (the amount in the original Finance Committee bill, which has since been raised.)

"Given that medical costs have trended upward at a rate of between 7% and 10% over the last five years, one is left to wonder if the average Miami family will find its benefits exceeding the tax triggering ceiling by the time the tax provision is imposed in 2013," Dobson wrote.