‘Cadillac’ Health Plans

President Barack Obama and key Senate negotiators are considering imposing a new tax on so-called “gold-plated, Cadillac” health insurance policies to help cover the trillion-dollar price tag carried by the Senate Finance Committee’s flagging health care overhaul proposal.

The term “Cadillac” has been used for years to refer to health insurance policies that cover an inordinate number of treatments and procedures. Sen. Charles Grassley (R-IA), ranking minority member of the Senate Finance Committee and the Republican most closely working with the Democratic majority to pass President Obama’s plan, said negotiators are “taking an intense look at” the proposal as a way of raising revenues to offset the $1 trillion the bill is expected to cost.

Sen. Olympia Snowe (R-ME), also a Finance Committee member, called the idea a “practical option” for “creating disincentives for the most expensive [health insurance] policies,” and Sen. John Kerry (D-MA) said his proposal to tie the maximum permitted coverage to the average level of benefits provided federal employees is “gaining support” in the Senate. Benefits over that threshold would be subject to a new tax.

This is being shopped to the public as just another tax on the super-wealthy, with Obama administration officials pointing to the “$40,000-a-year health insurance policies” carried by a handful of top Wall Street executives as examples of such unnecessarily luxurious coverage. However, a tax on “Cadillac” health insurance policies would end up disproportionately affecting middle- and lower-income Americans across the board, as well as the entire insured populations of several states.

The reason for this is the profusion of mandatory minimum coverages state governments require to be included in health insurance policies sold in their states. This results in residents being forced into uniformly high-priced, coverage-heavy “Cadillac” insurance policies.

Rhode Island leads the nation with 70 treatments and procedures that every policy sold there must cover, including asthma education and in vitro fertilization — one of the most expensive medical procedures health insurance can cover. While there is no doubt these coverages are useful to and desired by some consumers, all insured residents of the Ocean State are forced to pay for asthma ed and IVF insurance, even if they aren’t potential consumers of either. Rhode Islanders’ premiums are also higher than they otherwise would be because every policy sold there is required by law to cover the cost of smoking cessation, hair prosthesis, and acupuncture — along with 65 other treatments, procedures, and conditions.

States with fewer mandates than Rhode Island are hardly more consumer-friendly. Minnesota, for example, has among its 68 mandates coverage for birthmark removal, chiropractics, visits to a registered dietician, and visits from a social worker. Arkansas’ 43 mandates include requiring insurance to cover the costs of hiring a personal trainer and a drug abuse counselor; New Mexico’s 57 include circumcision, contraceptives, and “Oriental medicine” — a category that includes such “nontraditional” remedies as acupuncture, holistic medicine, and visits to the neighborhood herbalist.

In these and other states whose governments have responded to the influential clamor of special-interest groups by packing health insurance plans to the gills with mandated coverages, consumers are left without a lower-cost, lower-coverage insurance option.

This is reinforced by the fact that all 50 states have laws in place prohibiting residents who may want less “gold-plated” coverage at less cost from purchasing insurance in another state.

Allowing more personalized insurance policies to be sold within their borders, or transported across state lines, would be a major step toward decreasing both the cost of insurance and the number of individuals who lack coverage, millions of whom are currently uninsured by choice.

Onerous coverage mandates increase the cost of health insurance and force middle- and lower-income Americans to make an all-or-nothing decision between purchasing outrageously expensive policies that provide coverages they will never need and dropping their health insurance altogether.

Imposing a tax increase on these Americans would not only violate one of President Obama’s most oft-repeated campaign promises (not to raise taxes on any American making less than $250,000 a year), but it would add insult to insult by penalizing those who already pay exorbitant insurance premiums for the actions of their state governments.

Jeff Emanuel (jemanuel@heartland.org) is a legislative specialist in health care policy for The Heartland Institute.