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January 13, 2010

Senate Revenue Plan A Teacher Tax, Not A “Cadillac” Tax

Posted in: healthcare

The so called “Cadillac” tax is, in reality, a teacher tax. It taxes plans based on their cost, but not their generosity. As anyone who has bought health insurance will tell you, the biggest factor in determining the cost of insurance is not how generous the coverage is, but the sex, age, and health status of the buyer. As a result professions that tend to employer older, less healthy females–like teaching–will bare the brunt of this excise tax, regardless of how generous or bare bones the policies.

There are plenty of ways to redesign the teacher tax to make it an actual “Cadillac” tax. It would need to be indexed to some form of medical inflation to prevent it from hitting “Chevy” plans as time moves forward. You can force all insurers to use true community rating–charge everyone one price regardless of age or health status. It can, instead, base the tax on actuarial value, benefits covered, and/or co-pay design. You can calculate how much a policy would cost if bought by a group with average age and health status, and base the tax on that value.

A big problem is that the tax does none of these things. It is based on just a price tag not generosity of the benefits. As a result, it is not a tax on gold-plated insurance policies, but a tax mainly on older Americans, women, people with health problems, and those who work with them.

If I had a snowboard shop in Utah that employed only young, healthy people under thirty, I could probably buy the most over-the-top platinum insurance policy–one that covers dental, vision, plastic surgery, and botox with no out of pocket costs–and it would still be below the excise tax limit. On the other hand, if I ran a private school in Maine–one with most of the teachers being woman over 50 with health problems–I would probably find it impossible to find anything but very-low-quality, junk insurance that did not get hit by the excise tax.

Even if you support taxing “overly generous” health insurance, you should not support this particular excise tax in the Senate bill. It will not tax generous policies, just expensive policies. Until we force insures to charge everyone the same price regardless of age, the tax will disproportionately hit older, sicker Americans, and not exclusively those with extremely comprehensive insurance. If you want a “Cadillac” tax, at least of the decency to design a tax that just hits plans with generous benefit packages. Don’t give us a poorly designed and discriminatory teacher tax Edsel, and then try to spin it into an Escalade.


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