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.
"The main take-away message is that you can't put in a flat dollar amount," Dobson says. What's smarter and fairer is to figure out an actuarial value that would have to be risk adjusted."
Plans covering a group of employees who are predominantly younger, say a group of 30-year-old males, cost about $155 a month, or less than $2,000 per year. But for a plan covering employees who are largely 60-year-old females, the per member per month cost is $717, or $8,604, which comes close to exceeding the ceiling currently under discussion.
And there also is the question of occupational risk. Certain professions have higher utilization of the medical system than others, for example, firefighters or coal-miners. "Does this reform risk penalizing those in higher-risk professions?" Dobson asks.
Dobson says that current hikes in these thresholds, which were intended to be responsive to some concerns about fairness, don't go far enough to resolve the problems.
Dobson asks if the reform proposals under discussion "install both a ceiling and a floor without leaving room to even stand up? . . . It is certainly not out of the question for situations to arise where the ceiling for a given employer group could be lower than one or more of the prescribed floors."