Tag Archives: Cadillac plan

Modeling for the future

A new article in Business Insurance looks at the complexity of modeling the impact of healthcare reform. Here is an excerpt:

To determine whether a health benefit plan might become subject to the 40% excise tax that begins in 2018 and apply to premium costs that exceed certain amounts, modelers look at plan design as well as employee and employer contributions, and then project year-to-year increases in medical costs based on estimated future trends.

“Some employers could have Cadillac plans if health care costs continue their current trajectory,” said Robert Schmidt, a consulting actuary in the Boise, Idaho, office of Milliman Inc. “It depends in part on geography. If an employer operates in Southern California, their premiums are higher than they would be in Idaho.”

“Another variable is how rich the benefits are. A lot of employers, especially in the collectively bargained sphere, have low deductibles and low out-of-pocket maximums,” Mr. Schmidt said, which could elevate their health plan’s cost beyond the thresholds that trigger the tax. The thresholds are $10,200 for individual coverage and $27,500 for family coverage.

“Even if they aren’t quite Cadillac in 2018, the threshold only goes up by (the Consumer Price Index) plus 1%. So unless health care costs fall below that, more and more plans will be Cadillac plans,” Mr. Schmidt said.

Grab bag

Some interesting stories emerging.

  • The Office for the National Coordinator of Health Information Technology is taking on another big project.
  • In King County, Wash., there is concern about the arrival of the “Cadillac tax” in 2018. Here is an excerpt from a Seattle Times article: “Unless the county tames the growing cost of its employee-health plans, it could be forced to pay $18 million to $33 million in new taxes on ‘Cadillac plans’ starting in 2018, a Metropolitan King County Council analyst warned Wednesday.” What’s interesting here is the concern now, more than seven years before the tax becomes effective, which indicates the size of the task ahead.
  • And this, from Baltimore, where primary care physicians look to hospitals for rate negotiation clout and added security.

Contentious Cadillac

The debate over the Cadillac tax continues. Last night, economists Jonathan Gruber and Josh Bivens offered this analysis on PBS:

Meanwhile, the Huffington Post has weighed in as well:

People are saying that the so-called Cadillac tax “might fall flat” and “has real problems.”  And those are its defenders.  I can’t remember any new policy in recent history whose own advocates had so many complaints with its design….The debate shifted after studies (by Gabel et al. and the Milliman actuarial firm) showed that “richness of benefits” is not what would place most health plans into the tax.   It mainly targets benefits for older, sicker people, those that live in the wrong part of the country, or those in the wrong industry.  Then we learned that yes, employers will cut benefits if the tax is passed, but no, workers won’t get the money their employers save as wages.  Two consulting firms (Towers-Perrin and Mercer) confirmed overwhelmingly that companies intended to keep the money instead.

Take another drive in my Cadillac

Paul Krugman weighed in over the weekend on the Cadillac tax:

Should there be a limit to the tax deductibility of employer-provided health insurance, which is what the excise tax in the Senate bill is supposed to fix? My answer is yes, but the final bill should address the criticisms….The counter-arguments seem to run along three lines. First, there’s the argument that many “Cadillac” plans aren’t really luxurious — they reflect genuinely high costs. That’s surely true. A flat dollar limit to tax deductibility has real problems. At the very least, the limit should reflect the same factors insurers will be allowed to take into account in setting premiums: age and region.

What effect do age and location potentially have? Bob Dobson’s paper, “No Room to Stand,” looks at how South Florida is susceptible to the Cadillac tax.

In 2009, the cost of healthcare for a typical family of four in Miami covered by an employer-sponsored PPO is $20,282. The cost of care for a similar family in Phoenix is less than $15,000. While these numbers include employee cost-sharing (copays, deductibles, and other coinsurance are reflected in the MMI totals but are not subject to the excise tax), they still show how much more susceptible certain areas of the country are to hitting a fixed-dollar excise tax threshold such as $21,000. 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.

We have blogged about this before. You can read the Dobson report here.

Grab bag

Lots of reading to catch up on:

South Florida Cadillac

We’ve blogged before about the healthcare costs in Miami. An article in today’s Miami Herald looks at the possiblity that many health plans in South Florida may trigger the proposed tax on “Cadillac” benefits if such a tax is included in reform proposals. Excerpting from the article:

Santiago Leon, a Miami insurance broker, says that in South Florida “we have on the market today a surprising number of plans that would hit the `Cadillac’ ceiling.”

About a third of the 11,000 employees of Baptist Health South Florida have a plan valued at more than $17,000 a year. Considering that health costs are rising far faster than inflation, it’s possible those figures could be above the threshold of $21,000 in 2013, when the provision would be scheduled to take effect.

Meanwhile, Milliman, a national consulting firm, released a study earlier this year that an average employer-based, preferred provider organization plan for a family of four in the Miami area cost $20,282 in 2008.

Continue reading

Voting day

With the Senate Finance Committee set to vote today on its bill, much attention is focused on some of that bill’s unique provisions, including the excise tax on Cadillac plans. The New York Times covers the excise tax in this morning’s edition, citing various perspectives, including Milliman’s Bob Dobson, who wrote a paper on the topic. Here is an excerpt:

Aides to Mr. Baucus, the Finance Committee chairman, said the tax had numerous benefits, and predicted that employers and employees would shop for health plans to avoid it, forcing insurers to rein in costs.

They also cited projections by the Joint Committee on Taxation that about $142 billion of the 10-year total of $201 billion to be raised by the proposal would come from increased income and payroll taxes — evidence, they said, that workers would receive increased wages if employers spent less on health benefits.

But the same expectation that employers would adjust their health plans to avoid the tax was cited by some critics as a potential harm for workers.

“Employers and insurers will reduce their benefits to avoid paying the proposed tax,” said Representative Pete Stark, the California Democrat who heads the Ways and Means Subcommittee on Health. “As a result, middle-class families will be forced to pay more for health care.”

Some experts said that the tax was a complicated, backdoor way to tax employer-provided health benefits, and a number of them maintained that simply ending the tax exemption for such benefits would be a better approach.

Others said the tax would have an uneven impact, falling harder on businesses that, for instance, have older employees or are situated in high-cost regions.

Robert H. Dobson, an actuary at Milliman, an employee benefits consulting firm, said, “The high cost of so-called Cadillac plans has as much to do with the characteristics of the covered population as it does with the richness of the benefits.”

Read the full article here.

Cadillac plans in for a smooth or a bumpy ride?

Robin Baker pens an article in today’s Huffington Post about the proposed tax on “Cadillac” plans, using Milliman research to analyze the excise tax:

A brief by Milliman Inc., the world’s largest independent actuarial and consulting firm, notes that high-cost plans have as much to do with the beneficiary’s geographic location, profession, age, gender and health status as with the richness of benefits.

With regard to geography, Milliman uses the example that a typical employer-sponsored plan for a family of four in Miami in 2009 is $20,282. In comparison, the cost of plan for a similar family in Phoenix is less than $15,000. Given that the medical costs have grown between 7 percent and 10 percent over the last few years, it is possible that benefits in some geographic areas could exceed the tax trigger by 2013.

Those in high-risk professions, such as firefighters and coal miners, have higher utilization costs and would easily be subject to the excise tax. A new provision by Sen. Jay Rockefeller (D-W.Va), however, would increase the allowable benefit amount to $9,850 for an individual and $26,000 for a family.

Age and gender also make a difference in the cost of premiums, and age is the biggest cost driver over time. Millman notes that the national average per-member, per-month cost for a 30-year-old male is $155 per month — less than $2,000 per year. But the cost for an age-60 female is $717 per month, or $8,604 annually, which exceeds the tax threshold.

Age is a significant factor, especially with the percentage of workers 55 and older increasing and remaining in the labor force longer. It is estimated that 93 percent of the growth in the U.S. labor force from 2006 to 2016 will be among workers ages 55 and older.

As people age, health care premiums increase and as premiums increase, it is possible that those that did not exceed the threshold in 2013 may be taxed in the future. The cost of plans could become a problem for employers with an older workforce.

Read more.

Health Leaders looks under the hood

Health Leaders looks at the proposed excise tax on Cadillac plans, citing the recent paper by Bob Dobson. Quoting from the article:

“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.”

Read the full article here.

Health Care Policy and Marketplace Review has also picked up on the paper.

Weekend happenings

For those of you who spent the weekend reading the full text of the amended America’s Healthy Future Act and now have nothing to do, here is some other pertinent reading from the weekend:

The working definition of actuarial value that has been proposed has a number of problems or limitations. Here, then, is another: Will this reform potentially install both a ceiling and a floor without leaving room to even stand up? The ceiling is based on fixed dollar amounts, while the floor is based on specified actuarial values (ratios of benefit value to total cost). 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.

Click here to read the full paper about Cadillac plans.