Proposed Cadillac Tax Changes Miss the Mark

Our Thinking / Healthcare /

Proposed Cadillac Tax Changes Miss the Mark
Calendar09 February 2016

Since the earliest days of the excise tax, we’ve been explaining to policymakers, the media, and anyone who would listen that the cost of health care coverage is driven by many factors other than the richness of the plan design. Geographic location is just one of the more obvious. As anyone who lives in New York City or San Francisco can tell you, some places are just more expensive than others. And cost-of-living is just one factor affecting prices in a given health care market – competition and variations in provider practices come into play as well. So you’d think we’d be pleased by the recent announcement, discussed in this Business Insurance article, that the administration is now proposing revisions to the excise tax to address cost variations by state. Unfortunately, it is not an adequate fix for the geographic cost differences. In its upcoming 2017 federal budget, the administration will propose that in any state where the average premium for “gold” coverage on the state's individual health insurance marketplace exceeds the Cadillac-tax threshold under current law, the tax trigger would be set at the level of that average gold premium. First, health care cost varies by market, not state. But in addition, premium rates for individual plans on the public health exchange are generally lower than in employer plans because the networks are smaller and have targeted the lowest-cost providers. Because of this, there may only be a few states where the average gold plan cost is over the tax threshold. Finally, and perhaps most importantly, to use the average cost of a gold plan as a trigger – a plan with an actuarial value of 80%, which is very typical of employer plans today – seems like a low-ball match for an adjustment to the threshold for a “Cadillac” plan.  

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