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.
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.
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.
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.
Lots of reading to catch up on:
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.