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Tuesday, June 8. 2010
The so-called Cadillac excise tax in ObamaCare will force tens of millions of Americans into Yugos.
The 40% excise tax imposed by ObamaCare upon “Cadillac” medical insurance and related plans could actually increase costs to employers by up to 60%.
The Democrat Congress voted for it to penalize the supposedly well-to-do and to raise revenues. Some conservatives support it as well, to force more cost-consciousness in the choice of medical benefits and potentially restrain medical care usage and cost-inflation.
The effects will be drastic, well beyond what many are aware.
The Cadillac excise tax is paid by the administrator of the medical plan, whether the insurer or claims administrator, and will be passed on to the employer sponsoring the plan for its employees. The excise tax is not deductible from taxes. So, if in, say, a 35% federal tax bracket the 40% becomes an actual 54%. Most states conform to federal tax regs, so add in the state tax impact and the true cost of the Cadillac excise tax can be as much as 60% or more.
The excise tax will take effect in 2018. It impacts the excess of annual premium above $10,200 for an individual or $27,500 for a family (including as of 2013 a restricted to a max of $2500 annual employee contribution to pre-tax flexible spending accounts to pay for out-of-pocket medical expenses), those thresholds then adjusted by CPI inflation which is far below medical cost inflation. (Some “dangerous” trades and some elders have slightly higher thresholds.)
Add that 40% to 60% on top of current and future premiums and the result will be a sharp increase in employers and employees’ costs, resulting in sharp decreases in benefits for medical care.
Now, let’s segue to a medical insurance client of mine in
It’s a small firm. Neither the owners nor their employees are rich. Their earnings are middle-class. The owners are both married with two child dependents. An employee is married, his wife having had expensive life-saving treatments for cancer, an ongoing expense. Their medical insurance is with a major reputable carrier. The plan is a PPO, with in-network and out-of-network benefits. They have excellent in-network access to top doctors and hospitals, but to save his wife’s life the employee had to use the out-of-network benefits to go to another state at Mayo. The employer pays most of the employees’ premium.
The current monthly premium for a family is $3031 ($36,372 annually). (The benefits are below.)
At their last renewal, they could have cut a family’s monthly premium to $2597 ($31,164 annually), for an increase in out-of-network coinsurance (member responsibility to pay) from the present out-of-network 40% of negotiated (discounted) charges and 100% of the excess above that to 50%, an increase of $500 per member in-network and $4000 out-of-network in maximum annual out-of-pocket expense($1000 in-network and $8000 family), and a $5 brand Rx co-pay increase.
The business owners do not drive fancy cars, live in fancy houses, go to fancy restaurants or on fancy vacations. Their priority is on protecting their families and that of their employees, especially with an employee’s wife having a life-threatening disease needing special out-of-network care.
They chose to not cut benefits, now anyway.
In the future, they will have to cut benefits to far below even the currently available alternative.
Multiply that cut in benefits by millions of employers, and tens of millions of employees.
As Al Jolson famously said, “Ya ain’t seen nothin’ yet!” Americans with medical insurance will be forced by ObamaCare to switch to Yugos.
(Current plan benefits: In-network, doctor visits are $20, hospital inpatient is 20% of the carrier’s negotiated discounted charges, and prescriptions are $10 for generic/$25 for brand on the formulary and $40 non-formulary brand. The annual out-of-pocket maximum is $3000 per member, with a two-member maximum of $6000 for a family. The lifetime covered charges is $5-million. Is that “Cadillac”? Oh, by the way, as Politico reports, the ObamaCare "Health law could ban low-cost plans" as well. American workers are screwed either way by ObamaCare.)
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An informative article, though for me, a bit unclear. What does this part at the end mean?
"(Current plan benefits: In-network, doctor visits are $20, hospital inpatient is 20% of the carrier’s negotiated discounted charges, and prescriptions are $10 for generic/$25 for brand on the formulary and $40 non-formulary brand. The annual out-of-pocket maximum is $3000 per member, with a two-member maximum of $6000 for a family. The lifetime covered charges is $5-million. Is that “Cadillac”? "
Is that a description of a "Cadillac" plan under the new law?
Pardon my pre-coffee denseness...
You judge if that's a "Cadillac", or "Chevy".
It is the current benefits of my client's plan, as referred to above when I said "(The benefits are below.)
It took my third cup of coffee to write it, and it's causing some readers to turn to tranquilizers.
Bruce - Thanks for the clarification. Two mugs o' coffee later, it makes sense now.
And no, I do not see the above description as that of anything I'd call a "Cadillac" plan.
I have a lower-end plan through Healthnet, to cover my wife, son and myself. I'm an entrepreneur and needed a plan that was low cost yet protected my family in the case of a serious medical expense event.
For $369 per month, it's been a very good deal for us. There is no copay, but office visits range between $60 and $100, yearly max out-of-pocket is $5K. But as I had one hospital stay that billed out at over $30K of which I paid $3.2K, the plan has pretty much done what it was supposed to do. I'm very concerned that the new health care laws will raise our costs or remove plans like this completely.
On a related subject, the person who was going to invest $30M in our company has at least temporarily and probably permanently suspended investing in America - including the $30M in our company and the balance of $400M in a large handful of other companies. The reasons stem from the real world effects of the health care plan, 'financial reform' and the high probability of even more anti-business laws and regulations like cap-and-trade, EPA CO2 regulation,etc.
He and his partners put this pool of money together last year with the goals of both making money and creating good jobs in America. But the actual and predicted actions of our new government are probably putting an end to most if not all their investments in America - before they even happen. He says it is becoming very difficult to see a productive and successful financial future in the US for investors who want to help new companies.
This guy and his partners sincerely want to create permanent jobs and success in America for many people. For one of their requirements of us is that we not outsource work overseas - and they are completely willing to take an earnings hit to do the work here.
But our Congress and President with health care, financial reform, and the potential for cap-and-trade, and who knows what else via bureaucratic regulation seem to be doing everything they can to prevent these investors from creating jobs and success here in America.
These investors will put their money to work outside America if they can not see their way to investing here.
I never thought I'd see this happen in America. Over the years I've read about countries that scare off investors due to the fear of reprisals and hostile actions of rogue regimes, but I never thought it could happen here.
For the first time in my fifty-something years, I'm truly worried about not only my own future (I put the last six years and most of my savings into this company), but that of my family and the entire nation.
And I'm normally an incurable optimist.
I just started on Medicare two months ago and I'm enrolled in a Medicare Advantage plan actually with the same carrier that I had when I was working. It's an HMO plan that seems to be just about the same as the one I had while working. I've never had any complaints with it and it's pretty liberal as far as choices go. I've never had a problem with being limited in any of my dealings the way HMOs are so often described. So now Obama and the Congress want to take away my additional coverage from my HMO plan and probably eventually eliminate Medicare altogether. So that we'll all more or less be on MedicAID like some welfare recipients. Nice.
That plan actually sounds pretty rich to me. It's very much like the one I am fortunate to have. But to have to pay only $20 for a one-hour visit to a neurologist who usually bills at $800 (and gets less than half of that from the insurance company) or pay $30 for drugs that cost $280 retail (imitrex) is really nice.
My previous plan had a $5,000 deductible. You think a lot more about going to the doctor when you are paying the first $5,000.
That said, I still don't want the government messing in this. Let the market take care of it. But yes, being limited to $3,000 out of pocket a year for medical expenses is really, really nice. Other than having all expenses paid, I don't know how you could have a much better plan.
"Other than having all expenses paid, I don't know how you could have a much better plan."
Yes, it is not a bare bones plan. And, the ObamaCare required benefits are likely to be as "rich" or moreso, especially adding peripheral "cures" pushed by political contributors. Meanwhile, "bare-bones" plans will be outlawed.
Catch-22 for employers and employees.