Though the Senate bill includes some leeway for high-risk groups like firefighters, whose premiums tend to be higher, both business and organized labor argue that an across-the-board tax is unfair as it will disadvantage workers who have higher-premium plans because of uncontrollable factors that drive up costs—including pools dominated by aging workers or those at higher risk. Premiums can also vary widely according to geographic location. A plain-vanilla health plan in Boston, for example, can cost more than one with incredibly rich benefits in Des Moines. These various factors make defining Cadillac plans a difficult exercise.
Edwin Park, a senior fellow at the liberal-leaning Center on Budget & Policy Priorities in Washington, D.C., argues that the excise tax is a step in the right direction toward closing what essentially has been a tax loophole for years. Since employer-sponsored health care has been exempt from income or payroll taxes, the federal government essentially provides more than $250 billion in health-care subsidies to both middle-income people with generous benefits and higher-income people each year, he says.
Higher-income earners effectively receive more significant subsidies since they are in a higher tax bracket, and tend to be enrolled in the most expensive health plans. Park says this amounts to an unfair advantage against middle-income people not covered by their employers and who thus receive no tax subsidy. "By placing on a tax above a certain premium value, you would discourage insurance companies and firms from offering very generous health plans," he says. "That's the reason why the business community and unions are concerned—the unions have negotiated comprehensive plans and business generally doesn't like government to affect its decisions."
Affects 1 in 5 Families The Center on Budget & Policy Priorities estimates that more than 90% of family plans will have premiums below $23,000 in 2013. A plan costing $23,000—above which the Senate bill would start to tax—would be about 40% more generous than the plan covering most members of Congress, according to the organization's data. For his part, Paduda, the health spending consultant, estimates that about 1 in 5 families and 1 in 6 individuals will be covered by plans subject to the tax by 2013, accounting for inflation.
The strange bedfellows of unions and pro-business groups demonstrate the great difficulty in getting any meaningful health-care reform passed, says Paduda. "They're both saying they want to cut costs—they just want others to cut costs." He says both groups "are trying to shift costs over to the expense side"—hospitals, doctors, and medical device and drug manufacturers.
A middle-of-the-road plan may include a $1,000 deductible, $10-$25-$50 prescription co-pay tier, $20-$25 co-pay for doctor's office visits (higher if out of network), restrictions against cosmetic surgery, and limits on mental and nervous care such as psychotherapy or substance abuse treatment. Higher-level executives, partners in prestigious law firms, and highly paid physicians would tend to have plans with richer benefits: no or extremely low deductibles, a $5 flat drug co-pay regardless of brand name or generic, a $5 co-pay for physician's office visits, and lax restrictions on mental and nervous care. Some deluxe plans cover cosmetic procedures and offer high lifetime benefits, as well as out-of-network coverage. Such plans often include vision and dental insurance as well.
"We don't see how this is going to have any true downward pressure on costs," says the Chamber's Gelfand. "Instead, we think that over time more and more businesses and employees are going to get hit with the tax, and the government is going to come to rely on it." In as little as 5 to 10 years, he forecasts, nearly all self-employed insurers will incur the tax since it is indexed to overall inflation plus one percentage point, while health-care costs continue to outpace that. "This isn't really about wealthy people," Gelfand says. "Some huge CEOs have huge plans, but the real issue is workers and employers."