Why taxing Cadillac plans won't bring down costs

[dkf]

Excellent points here. I recommend reading the whole thing

http://www.healthbeatblog.com/2009/12/fact-check-the-cadillac-controversy.html

The first thing you need to know is that a pricey plan is not necessarily chock full of benefits. When setting premiums, insurers are not thinking about how much value you will get from the policy; they are contemplating how much it will cost them to reimburse you. Here, two factors weigh heavily on their minds:  your age, and the cost of health care where you live.

The most recent December edition of Health Affairs online reports on a study of more than 3,000 insurance plans:  "It's often assumed that high-cost health insurance plans - sometimes called 'Cadillac' plans - provide rich benefits to plan subscribers.”  But “Health reform provisions that treat these plans like luxuries may be misguided. Only 3.7 percent of the variation in the cost of family coverage can be explained by benefit design (actuarial value). “

In regard to costs influencing patient decision making: Chronically ill patients don’t make the decisions on big ticket items such as surgery, hospitalization, a battery of expensive tests, or a drug that costs $50,000 a year. Doctors and hospitals tell them what they must have to survive. Co-pays and deductibles will not make these patients more “cost-conscious.”  Cost-sharing will only give a distraught stroke victim another reason to worry.

Patients do make small decisions. Should  I visit the doctor? Should I have my blood pressure checked?  Should I try a smoking cessation clinic? And here, research shows, that if they face a co-pay, there is a 50/50 chance that they will make the wrong decision, foregoing needed care.

In the end, true cost-control means addressing the underlying problems: we pay too much for virtually every pill and procedure; we over-pay for  aggressive care and under-pay for preventive care. We reward hospitals for inefficiency and waste. And too often, providers over-treat patients, exposing them to unnecessary risks.

The problem is not that premiums are sky-high because insurance plans are too generous. Premiums only reflect the problem at the  center of a healthcare system spiraling out of control: over-use of over-priced medical technologies, leading to  run-away healthcare inflation.  

[Captain Hilts]

1. REVOKE health insurance industry's anti-trust exemption!!!! NOW!!!!

[Land Shark]

23. +1

[ProSense]

2. This is another opinion criticizing the plan based on existing problems

In the end, true cost-control means addressing the underlying problems: we pay too much for virtually every pill and procedure; we over-pay for aggressive care and under-pay for preventive care. We reward hospitals for inefficiency and waste. And too often, providers over-treat patients, exposing them to unnecessary risks.

The problem is not that premiums are sky-high because insurance plans are too generous. Premiums only reflect the problem at the center of a healthcare system spiraling out of control: over-use of over-priced medical technologies, leading to run-away healthcare inflation.

All of these concerns are why the health care system is being reformed. None of the concerns are justification for paying a lot of money for crappy benefits.

[johnaries]

3. Exactly. Everything they mention are being addressed by OTHER

provisions in the bill. Which makes the entire argument irrelevent.

[dkf]

5. Which makes the taxing of Cadillac plans purely punitive.

[Capn Sunshine]

11. not punitive, cost controlling

Dollars spent do not translate into better care. That's a bad assumption in this article. However, I appreciate your well reasoned points. Unlike so many on this board, you seem to be open to change.

[dkf]

4. And who is forcing us to pay a lot of money for crappy benefits?

It's not my idea.

[ProSense]

7. "It's not my idea. "

So why are you defending them? The plans should be taxed because once choice and cost controls are introduced, the only people who will benefit from such plans are the insurance companies.

[dkf]

8. This is pure policy analysis explaining why the Cadillac tax assumptions are wrong

Studies show premiums are less influenced by benefit structure and more by location and pool. You are arguing for the Cadillac tax based on misconceptions about reasons for deviations in the cost of premiums.

[ProSense]

14. The assumptions are not incorrect. These are high-cost crappy plans. n/t

[earthboundmisfit]

6. Rec'd ya back to 0

(Why this would be unreccable is beyond me)

I want to read all the info from each side of this I can - thank you for posting.

[Capn Sunshine]

12. I gave you a rec too

This "Us Vs Them" mentality is ridiculous. It's not a popularity contest.

My problems with the article are the underlying assumptions. That's where all this debate goes south. Because we can't know what end results are when we don't know what the existing parameters will be.

Also, If we're wrong and premiums don't decrease, we can always change the legislation with a new rider. It's not as if all of this is written in stone.

[dkf]

13. I don't understand how they claim they will be generating $150 billion in revenue

yet tell us premium costs will go down to avoid the tax. Also it sounds like they are reluctant to raise the amount from 23,000 to 27,000 or 30,000 because they are counting on this revenue. Then they allow no increase for inflation either.

[SpartanDem]

18. No it is indexed to inflation +1%

[dkf]

19. Link please

Also if you could clarify if it is indexed to health care inflation or CPI.

Not sure where it was but someone was explaining how inflation hits people in very different ways depending on their stage in life. We are seeing inflation in services but not in goods. So if you are a person buying a house and filling it with items you are in a good place as housing costs and durable goods prices are falling or steady. However if you need services like a college education or medical care your costs are exploding. They were making the argument that different populations need to beat different types of inflation.

My point here is that indexing to CPI won't work if the two rates are dramatically different

[SpartanDem]

20. CPI

You're right, there is a big difference right now between CPI and health care inflation, but that is something the tax is meant to control. The idea being insurance companies will be more judicious in raising premiums so as to keep plans from reaching the threshold. I also would predict that their reimbursement rates will inch toward Medicare rates as they will not want to eat all of that cost themselves.

pg 7-8
http://www.cbo.gov/ftpdocs/108xx/doc10868/12-19-Reid_Letter_Managers_Correction_Noted.pdf

[dkf]

21. What is the escape valve for these people if it doesn't?

The more I look at this the more I realize that all the solutions lie with the decisions that doctors make. We are enforcing those decisions in such a round about way it makes my brain hurt.

[dkf]

16. And thanks for the rec

Nice to see you back here.

I gotta admit the emotional level is a bit high lately. Hopefully more policy discussion will bring the temperature down a bit. It's brought my blood pressure down some.

[Vidar]

9. K&R.

[SpartanDem]

10. Those are some good points

age and regional cost should be be taken into account and I hope that they fix that, that doesn't mean overall the policy isn't good. The idea that their cadillac plans with chevy benefits gets to the heart of the problem in that people are always getting value for their premiums. In part becuase people have notion more expensive automatically eqauls better. In addition the bill address some of the other issues it move us away from the fee for service model through bundled payments, preventive care will have no cost sharing.


The argument for limiting the tax exclusion is that the tax break on health insurance encourages over-spending, so limiting it could help in the process of “bending the curve”. More generally, since we think the United States spends too much on health for not-so-good results, it makes sense where possible to pay for expanding coverage from the health sector itself. Both arguments are reasonable.

The counter-arguments seem to run along three lines.

First, there’s the argument that many “Cadillac” plans aren’t really luxurious — they reflect genuinely high costs. That’s surely true. A flat dollar limit to tax deductibility has real problems. At the very least, the limit should reflect the same factors insurers will be allowed to take into account in setting premiums: age and region.

http://krugman.blogs.nytimes.com/2010/01/09/the-health-insurance-excise-tax/

[depakid]

15. A classic example is "rent seeking" by providers:

Some years ago, I went to the ER a kidney stone. Having had a previous one in the other kidney, I knew what to expect- and what the treatment was.

However this time, the ER attending ordered a CAT scan, rather than an X-ray film. Since I was uninsured this go particular go around, I balked at that, as I reckoned it would be expensive- and not necessary.

I was assured: "Oh, they've gotten common enough that they've really come down in price, so it's not really an issue any more."

An xray film would have been about $75.00. The CT turned out to be $850.00!

(Gotta admit, it was petty cool to look at- but as expected, the doc reviewing it with me agreed that he didn't need it to determine whether the stone would pass or whether additional procedures like lithotrypsy would be required.

[Land Shark]

22. Only professionalism, which is SUPPOSED to disregard profit as necessary, can avoid that. NONPROFIT

Of course, nonprofit doesn't mean people don't get paid a reasonable salary, it means that they don't make more by recommending more services the non-professional can dispute, if at all, only with great difficulty.

[depakid]

24. Believe me, non-profits engage in rent seeking too

but your point is well taken.

[Land Shark]

17. While high premiums DON'T mean high benefits, High Benefits DO eventually mean "Cadillac" rates

so outlawing "cadillac" plans hammers both really sweet insurance as well as overpriced frauds.