Tag Archives: Bob Dobson

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.

Revisiting the cost and complexity of the most popular FEHBP plan

With the idea of expanding the Federal Employees Health Benefits Program (FEHBP) now in the news, it makes sense to revisit an earlier paper about cost and complexity in health plans, which includes analysis of the most popular FEHBP plan. For example, consider the range of costs among different health plans:

Plan Design

PMPM Value*

Ratio to MMI PPO**

MMI PPO

$275

1.00

Alternate PPO

$214

0.78

HMO-style plan

$317

1.15

Most popular FEHBP plan

$285

1.04

HDHP

$141

0.51

*For the United States as a whole and a demographic cross-section of the labor force population (including spouses and dependent children).
**This paper uses the plan design employed in the Milliman Medical Index as a baseline for comparison.

Read the full paper here.

Scrapbook

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.

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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.