Why the ‘Cadillac Tax’ is such a tough pill to swallow

Dan Gorenstein Dec 11, 2015
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Why the ‘Cadillac Tax’ is such a tough pill to swallow

Dan Gorenstein Dec 11, 2015
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 Everyone loves to talk about how Americans are spending too much on healthcare. And there’s a provision in Obamacare — often called the Cadillac Tax — that’s designed to at least help slow down this spending habit by taxing high-priced health insurance plans.

But word from Washington is lawmakers on both sides of the aisle are looking at ways to delay the provision — which is slated to take effect in 2018.

At its most basic, the Cadillac Tax penalizes health plans that exceed $10,200 for an individual, or $27,500 for a family. Why penalize with those plans? Boston University economist Austin Frakt said you can think of them like a buffet.

“I’m going to eat as much as I need to, and then I’m going to eat 30 percent more cause I’m not going to pay anything when I make another trip to get more shrimp and lo mein,” he said.

In other words, as far as the consumer is concerned, going to the ER is no different than seeing a primary care doctor. So really the goal of the Cadillac Tax is to get people with employer-sponsored insurance to be more cost-conscious. The hope, said Bob Kocher, a former healthcare advisor to President Obama, is that this will put pressure on the entire industry.

“If you want to have competition, you need to have the patients have some incentives to shop and compare,” he said.

But right now, what consumers are facing is more out-of-pocket exposure. As we approach 2018 — when the tax is supposed to take effect — employers have started shifting costs to their employees to avoid the tax. Elise Gould with the Economic Policy institute said as that happens people will start cutting back on all of their care, not just the wasteful stuff.

“Some of that care is going to be really problematic if they don’t get and it ends up costing the system and themselves more money in the long run,” she said.

While tax supporters agree this approach is far from perfect, former Congressional Budget Office Director Doug Elmendorf said it’s one of the few ideas we’ve got to control health spending.

“If people keep going to the buffet for healthcare, then they’ll end up getting certain kinds of care that doesn’t help them be healthier,” he said.

Not only does that last plate of mac and cheese not help you, Elmendorf said, it’s expensive and we all end up paying for it.

 

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