Sunday, October 4, 2009

Make Mine a Buick

Congress thinks those who have Cadillac health insurance policies should be taxed on the excess benefits. But they are having one hell of a time figuring out what that is. As you get older, health insurance costs staggeringly more, even for basic plans. And many union representatives, noting that healthcare costs were easily outpacing the general cost-of-living increases, have opted to focus their new contracts on getting more benefits (lower deductibles and co-pays are particularly popular) versus higher hourly wages. But if healthcare benefits are substituting for higher pay – since higher pay would be subject to tax – shouldn’t we simply tax policies with such clear financial benefits. And have politicians lose union support?! Yeah, right!

The October 1st Washington Post: “Many proponents of taxing high-end employer-based coverage have singled out the titans of Wall Street finance and industry, whose insurance might pay for regular EKGs, CAT scans and weekend health retreats at tony spas. The California Health and Longevity Institute, for example, offers ‘comprehensive physicals’ over several days that include personalized counseling on wellness, fitness and nutrition… But insurance plans that cover those types of things are rare. More common are the generous health benefits that many union workers receive -- plans with high employer-paid premiums, low deductibles, prescription drug coverage, vision and dental care, and low or no co-payments.”

The conundrum is obvious: “‘It's the old Washington, D.C., law of unintended consequences,’ said Robert Laszewski, president of Health Policy and Strategy Associates, a consulting firm. ‘They went after the Goldman Sachs partner and they ended up with the fireman in Brooklyn.’” (Post article above). For anyone faced with buying health insurance, even basic policies in high cost areas can run over $1,500/month for families, so where’s the line? $1,700? $2,000? Does age factor into this (younger insureds are always cheaper). Do we forget about taxing this benefit? Address “abusive luxuries” if we can figure out how to quantify them?

Presidential candidate, Republican John McCain, started this focus on eliminating tax-free corporate medical benefits to "those people who have the gold-plated Cadillac insurance policies that have to do with cosmetic surgery and transplants and all those kinds of things." Good luck finding coverage for all those wonderful little extras. Not that common. What is common, particularly among union and governmental employees (who tend to be older and live in expensive urban centers), is pretty high insurance rates for demographic factors they actually cannot control.

Senate Finance Committee Chairman, Max Baucus (D-Mont), author of the current plan being hotly discussed on the Hill, suggested initially that there be an excise tax of 35% on insurance plans that cost more than $8,000/year for individuals and $21,000 for families, but soon he found some pretty heavy opposition from high risk workers (coal miners, firefighters, etc.). Sen. John D. Rockefeller IV (W.Va.): “I want people to know -- particularly the coal miners in my state -- that I will work to protect plans for high-risk workers from an excise tax… Taxing these higher-priced insurance plans is simply unacceptable.” Baucus then suggested $750/month for individuals and $2,000/month for families as the new adjusted threshold. As time passes, these limits rise (1% per year), but I suspect, this issue has a long way to go before any semblance of taxing this benefit actually winds up in and actual legislation. What are your thoughts?

I’m Peter Dekom, and I approve this message.

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