Demystifying the "Cadillac" health plan

Obama administration Senior Advisor David Axelrod talks with reporters after meeting with the House Democratic caucus at the U.S. Captiol in Washington, DC. Axelrod was on the Hill to talk to members of Congress who are facing several large pieces of legistation, including health-care reform, as they head into their summer recess.

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TESS VIGELAND: We all knew we'd be spending a lot of time in the waiting room while politicians debate health-care reform. We knew it meant open-heart surgery for the entire health industry. Now, it seems, infection is starting to set in. All we can do is pace and wish that health reform was as successful as Cash-for-Clunkers.

Congress is getting ready to head home for August break with no clear deal on the table. So let's hear about one buzz phrase that came up this week. The idea is to tax so-called "Cadillac" or "gold-plated" benefit plans.

Joel Rose explains what those are.


Joel Rose: The average family's health insurance policy costs $13,000 a year. Some plans cost twice, even three times that much. Those are the plans the White House is talking about taxing. Here's presidential adviser David Axelrod on CBS's Face the Nation.

Axelrod: This was an intriguing idea to put an excise tax on high-end health care policies, like the one the executives at Goldman Sachs have.

Goldman Sachs didn't return my calls, so I didn't get to ask exactly what a $40,000 a year health insurance plan covers. But Len Burman at the Tax Policy Center in Washington thinks he knows.

Len Burman: There's some plans for which almost everything is paid for. So you go to the doctor, you don't worry about what's prescribed or how much is being spent, because you're not responsible for any of it.

You're not responsible for the proposed taxes, either. They would be directed at insurers who offer premium plans, although insurance companies would probably just pass the costs back to the consumer. And a lot of those consumers aren't earning Goldman Sachs salaries. They're just paying high premiums, because they may have a pre-existing condition or because they are expensive to insure for other reasons.

Karen Pollitz studies the insurance industry at Georgetown University.

Karen Pollitz: Insurers will jack up the price of health insurance for somebody who is sick. We pay more based on age. But that doesn't make it a Cadillac. It just makes it an over-priced, I don't know, bicycle.

Unless there are cheaper plans on the market, Pollitz says the proposed tax might indirectly affect a lot of people with expensive but very average coverage.

I'm Joel Rose for Marketplace Money.

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