Are Cadillac plans responsible for rising health costs?

If there’s anything that liberals hate it’s inequality – unless it’s the Federal tax code – and health care is a prime offender. The liberal mantra is that everyone should have the same access to basic health care. But this doesn’t just involve improving health care access and affordability for millions of uninsured Americans. It also involves limiting or impairing (through taxes) those health care plans liberals have decided are too generous. These so called “Cadillac” health care plans that are very expensive, very inclusive, and have relatively low deductibles are usually offered by employers as part of a generous benefits package to attract talent to their companies.

So not only do Cadillac health care plans violate the the liberal directive of health care egalitarianism, they are a tax loophole for highly educated and highly trained employees. In order to fix this affront to the socialist gods the Affordable Care Act (ACA or ObamaCare) handicapped these plans with a 40% tax starting in 2018 for health plans costing more than $10,200 a year for single coverage and $27,500 for a family.

Ostensibly, the tax on Cadillac health care plans was done to try and pay for part of the massive spending bill that was the ACA but Congressional Budget Office estimates of the yearly revenue from this tax have fallen from $24 billion to only $12 billion starting in 2018. And this revenue is likely to continue to decrease as the tax has the intended purpose of eliminating as many of these plans as possible. Additionally, labor unions, a major purchaser of these plans for their members – and a major backer of the Democratic Party – are excluded from this tax which just proves the old saying about socialism, “all people are equal but some are more equal than others.”

But perhaps the wackiest reason that liberals oppose Cadillac health care plans is that they are convinced – a priori – that these plans are a significant reason why health care is so expensive in this country.

The [lack of a current tax on high cost, low deductible employer sponsored health care plans ] creates a bias toward people over-consuming health care services and under-consuming everything else that money might buy. This bias especially advantages people with high incomes, for whom tax subsidies are very large due to their relatively high marginal income tax rates.

Of course there is no proof for this assumption. It’s like claiming that gas prices are high because of rich people driving Hummers. It’s even worse than that.  People don’t consume health care like other consumer products. It’s not like people who have Cadillac health plans – most of whom are relatively young, affluent, and healthy – are having more joint replacements, cardiac procedures, screening colonoscopies, MRI scans, or pregnancies than similar people who have far less expensive plans.

Health care resources are utilized the most by those who need it the most and not by those who can afford it the most. As an example of this we can use data from ER visits as a measure of health care usage by insurance type. It turns out that the vast majority of patients who visit an ER have government insurance coverage and Medicaid beneficiaries under the age of 65 utilize the ER far more than those under 65 who have private insurance such as a Cadillac health care plan. The irony is that the total spent on the much lower cost government insurance of Medicare and Medicaid was actually $65 billion more than the total spent on private insurance (for year 2011) of which only a percentage was from Cadillac health care plans.

One of the biggest attractions of a Cadillac health plan is the low deductibles that liberals claim are “encouraging” over-utilization of health care. These deductibles can be as low as a few hundred dollars and $20 per office visit. Instead, a lower cost private insurance plan can have deductibles of several thousand dollars per year. But wait a minute. The deductibles for Medicaid tend to be only $200 to $300 hundred dollars a month for a small family and Medicaid beneficiaries utilize far more health care resources than the average person under 65 with private insurance. What the heck is going on?

What appears to be going on is that the ACA was designed to give the shaft to people with private insurance plans by forcing their employers to pass more and more of the cost of health care on to their employees in the form of higher deductibles under the farcical liberal notion that excessive medical spending by the privately insured middle and upper middle class is driving up health care costs for Medicaid and Medicare beneficiaries. Unfortunately, this is socialist thinking. Blame those with money for causing the unfortunate circumstances of those without money. Good luck with that logic.

Chris Rangel is an internal medicine physician who blogs at RangelMD.com.

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  • kullervo

    Wow, ever met a liberal? I feel I should put the word in quotes, as you seem to be conflating it with “communist.”

    • Filo

      If the shoe fits…

  • http://onhealthtech.blogspot.com Margalit Gur-Arie

    “Health care resources are utilized the most by those who need it the most and not by those who can afford it the most.”

    Agreed. Everybody should have “Cadillac” care. Affluent, educated, young, old, poor, sick – everybody. Unfortunately, extraction of profits and boundless greed of corporations is just making basic Chevy care cost like a Cadillac.

    • Dorothygreen

      I have written about the Swiss system within these posts. whereby basic insurance coverage is mandated for all and subsidized for low income. This is an equal playing field. Prices are negotiated with the government.
      Then there is choice to purchase supplemental insurance – to see the top doctor on the team, to get a private room if one wants by paying through a monthly insurance premium. This is how the insurance companies can make a profit because it is outlawed for basic insurance. There is no way for extraction of profits and boundless greed that there is in the US. But, there is choice and competition for the consumer. The only way to purchase health care insurance is on an exchange. And everyone must. There is no employer mandate and the ability to get tax deductions,

      This is a much better way to go than a single payer for the US.

  • Anthony D

    The mandate that forces you to buy insurance at rates much higher than before also has an escape hatch. If it is higher than a set percentage of your income even after subsidies, you are exempt. We will never see the percentage of people covered that was advertised. Young people are going to get hammered. They use the least health care but their premiums will be subsidizing others. You will force them to decide between
    eating and housing and insurance. Most will simply pay the penalty and move on naked.

    They can just wait until they have a major illness and buy insurance since they can’t be denied coverage for pre-existing conditions after full implementation. It is a disaster by design.

    • http://onhealthtech.blogspot.com Margalit Gur-Arie

      The only reason this is a disaster is because we have multiple insurance pools instead of a single continuous one that includes everybody. If we did have the latter, the young would pay for health care for the old, the old would pay for education for young people’s kids, and a host of other societal things we all pay for, but only some of us need, some of the time. This is the social contract that is being dismantled by scorched-earth corporate strategies.

      • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

        Your idea of a social contract is that everyone pays for everyone else. I mean, those who can pay will pay for the needs of those who can’t pay enough. I mean, from each according to who can pay, and to each according to what they need.

        Yes, I think that is Marxism.

        First, we will all pay the politicians who are imposing this system, shown to produce poverty wherever it is tried. Think of our politicians as Mother Theresa with a gun.

        • http://onhealthtech.blogspot.com Margalit Gur-Arie

          We the people should impose this system, not politicians. I think that’s called Democracy.

          Every system can be taken to extremes and corrupted, no matter what you choose to label it. The Capitalism we supposedly have now has been similarly corrupted by corporations and the politicians they are financing without our informed consent.

          The U.S. is the only developed country where people have been duped into believing that what’s good for a few global corporations is necessarily good for America. 25% of our children live in poverty.

          You shouldn’t go as far left as Karl Marx, but you should also not go as far right as Ayn Rand, particularly when you throw in a surveillance and police state to boot.

          • NewMexicoRam

            And 50% of children are born out of wedlock.

            Any correlation, you think?

          • http://onhealthtech.blogspot.com Margalit Gur-Arie

            Absolutely.

            Question is what should we do about it?

  • Sean Harris

    The majority of the cost is spent on people who “generally” have bad lifestyles. Unfortunately this population does not pay percentage wise their fair share.

    • Filo

      Chronic disease treatment account for approximately 75% of national health expenditures. Unfortunately, Marxist concept of fair share only applies to the “bourgeoisie”.

    • Carol Levy

      ah yes, auto immune diseases, many cancers, diabetes, other chronic diseases that often have genetics or luck of the draw as their progenitors. Instead blame the person effected.
      You have any citations or is this just your speculation and preconception?

  • Dorothygreen

    I am for access to affordable basic health services for all. I am glad we have a start with the ACA but it needs to morph into the Swiss system and purge the “free market” manta of having a right to be part of basic health care. There is no place in basic health care for a so called Cadillac plan. The Swiss have it worked out such that a valuable employee could receive a bonus for health insurance costs. But the employer is not responsible for or gets a tax deduction from it.

    The Swiss system is the way to go. Mandated insurance coverage for all. Employers have the option to contribute – they do not get tax breaks if they choose to insure their employees. Wages are better than the US. The insurance exchange is the only way to get insurance. The basic or essential services have the same basic premium cost for all – and it is a managed care premium, deductions and co-pays are the variables with caps. Don’t use it for a year, it is decreased. The government negotiates services with all players and monitors the use and quality.

    So, why are there so many insurance companies? Why aren’t doctors complaining about “the government” making their lives difficult, why is the population satisfied with their health care system? Why is it considered expensive but half the
    costs of the US/capita?

    1. it is all transparent. It is a system. Not a hodgepodge.

    1. The insurance companies can sell supplemental insurance. Want the best doctor – pay an extra health
    insurance premium, want a private room pay $100 per person/month, (they choose the so called Cadillac plan carte blanche and pay accordingly. All other supplemental health insurance possibilities are offered through the many insurance companies. They all must be registered with the government There is competition, choice and caps. And because all health care coverage is by insurance, insurance does all the administration. And, it is efficient.

    2. The government subsidizes low income folks to purchase insurance, it is separate from the exchange. These
    subsidies are generous but the individual must take responsibility to purchase. No computer – the information is in the newspaper. Don’t do it. Get a bill from the government and told to get it or else. About 97% of the population has
    insurance. There is no Medicaid and no Medicare.

    3. On average physicians pay is about the same as the US. Their education is subsidized.

    A single payer system does not fit the US given our insistence on choice and competition. This does not hurt anyone and keeps the cheating and greed out of the system.

  • Joseph Russo

    No more than the quotes put around the word “conservative”

  • bjt1970

    I’ve got a great idea. Let’s make people pay for health care services the way the pay for everything else in society – with real money in a market wtih price transparency. We’ll see how much you really like conservative, free-market principles when your compensation is cut in half.

    • Andrew K

      Actually, with price transparency and the elimination of middlemen payers (insurance, Medicare), physician compensation should either stay where it is now or actually increase. Patients will pay less due to competitive pricing, yes, but every single cent of that money will go straight to the provider. No more will the money be split to overhead and paying billing/coding employees. I would love that system. Bring it on.

  • Carol Levy

    What raises the health care costs is the costs passed on to us by hospitals and insurance companies to pay for the uninsured who have to rely on the emergency rooms as their FMD. They tend to come in later with worse illnesses because they waited trying not to use the ER’s.
    Dr. Rangel has a political right wing agenda to persue and ignores what has been and will continue to happen with costs if the 32 million+ remain uninsured.