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 Southern California. Medical insurance premiums in Southern California are well-below those in many other states, NY, NJ or Mass. as prime examples of states that have much higher premiums due to community rating and guarantee-issue which are also parts of ObamaCare to be imposed on all states.
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.)
