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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