Heller Takes The Easy Road: Cadillac Health Plan Target

Nevada Senator Dean Heller (R-NV) took aim at one of the more vulnerable (and questionable) parts of the Affordable Care Act as his contribution to the Republican Repeal – and eventually replace with something we don’t know what – plan.   [LVSun]

First, a “cadillac plan” is an exceptionally generous health care plan offered by some employers.  There’s good and bad news herein.  On the bright side, the plans offer very full coverage.  On the darker side, maybe there’s a bit too much coverage, and that has implications for restraining health care costs.

At this point it’s necessary to focus on what’s is important for the employees. Is it the continuation of the generous health care coverage OR is it health care cost containment. 

The Herring & Lentz report (2011) describes the cost and tax issues involved in summary form:

“One controversial aspect of the Patient Protection and Affordable Care Act is the provision to impose a 40% excise tax on insurance benefits above a certain threshold, commonly referred to as the “Cadillac tax.” We use the Employer Health Benefits Survey, sponsored by the Kaiser Family Foundation and Health Research and Educational Trust, to examine the number and characteristics of plans that likely will be affected. We estimate that about 16% of plans will incur the tax upon implementation in 2018, while about 75% of plans will incur the tax a decade later due to the indexing of the tax thresholds with the Consumer Price Index. If the Cadillac tax is ultimately implemented as written, we find that it will likely reduce private health care benefits by .7% in 2018 and 3.1% in 2029, and will likely raise about $931 billion in revenue over the ensuing 10-year budget window from 2020 to 2029.”

Senator Heller calls this “onerous,” however the Senator has often called any form of regulation on the insurance and banking sectors “onerous.”  Thus, it’s helpful to remember why this element was inserted in the bill in the first place.

Consider the following examples:

1) A patient with an extravagant health plan, often dubbed a Cadillac plan, goes to the doctor’s office. She’s told by her doctor that she should take a bunch of tests, even though the tests seem unnecessary. The patient knows most the tests are unnecessary, but she figures that since her health insurance covers everything, it’s better to be safe than sorry — it’s not like it’s costing her anything except a little time, anyway.

2) Another patient with a less generous health plan goes to the doctor’s office. She’s also told by her doctor that she should take a bunch of tests, even though the tests seem unnecessary. But this time the patient also knows her health insurance will charge her a bunch of extra fees for each test. Wanting to avoid a lot of costs, she decides to talk to her doctor about what tests are actually necessary, and she declines to take any of the tests that she and her doctor decide are unnecessary.

The Cadillac tax attempts to move more health plans from example No. 1 to example No. 2. [Vox]

The Cadillac Plans are popular – why not? Most medical costs are covered.  And, therein, as the examples suggest, lies the problem.  The employer can boast to prospective employees that “everything’s covered” in our health care plan; the employee can spend as much on medical care as is practical and then some; and, unions representing employees can boast about their prowess in gaining exemplary health care insurance coverage.  However, none of these positions suggests any form of health care cost containment.

There is no incentive built into the Cadillac  health insurance plans to contain rising health care costs. 

There are a couple of ways to address health care cost containment – none of which are evident in the Cadillac plans — (1) there could be limits on coverage, the bug-bear of the junk insurance policies sold before the ACA which put a lifetime limit on health care insurance coverage; met quickly if the person had a serious illness or accident; (2) there could be limits on the type of coverage sold to policy holders – unpopular with those who want (and can afford) the addition of vision, dental, etc. etc. (3) put an excise tax on the Cadillac plans to encourage employers and other policy holders to move from over-generous plans to more cost sharing models.  The third option was the intent of the ACA.

Repealing the excise tax on the Cadillac plans would completely remove any incentive for cost controls in this part of the ACA.

One of the trickier issues the Republicans will have to address in their Repeal and Replace operations is how to contain rising health care costs.  Repealing the “onerous” excise tax will eliminate one element of health care cost containment in the ACA. So, what do Senator Heller and other Republicans want as a way of replacement?  Junk insurance? Surely not. Limits on policy provisions for individual policy holders? Doesn’t sound very “freedom” or “customer oriented” to me at least.

Thus, the question Senator Heller, and others in his party, must face is how to “repeal” the ACA without opening the floodgates to rising health care costs?  Has anyone ask him about the implications of his suggestion?

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