If lawmakers want to get revenue from taxpayers who have especially generous health benefits, they should consider fine-tuning the proposed "Cadillac plan" tax, a team of actuaries says.
A 6-actuary work group established by the American Academy of Actuaries, Washington, and the Society of Actuaries, Schaumburg, Ill., prepared the report to help explain the actuarial implications of the Cadillac plan tax proposal.
At press time, congressional negotiators were working to reconcile the differences between the Senate health bill, H.R. 3950, and the House health bill, H.R. 3962.
H.R. 3950 would pay for some of the cost of expanding access to free and subsidized health coverage by imposing a 40% on insurers when the insurers issue "high cost" health benefits packages. The excise tax threshold in the version of the bill passed by the Senate would be $8,500 for individuals and $23,000 for families, with indexing only for the general inflation rate, not the health care cost inflation rate.
The actuaries looked at a variety of scenarios, such as scenarios in which premiums might increase 4.5%, 6% or 7.5% per year, and scenarios in which employers change benefit plans to avoid paying the tax and scenarios in which employers stand pat.
The actuaries suggest that the Cadillac plan tax could lead to unintended consequences, such as:
- Punishing workers who belong to employer plans with older, less healthy employees, rather than plans with lavish benefits.
- Requiring suppliers of dental, vision and prescription benefits to wrestle with major medical insurance providers over who is responsible for paying how much of the excise tax.
- Giving employers incentives to drop health benefits for retirees under age 65.
- Hurt small employers more than big employers, because small employers tend to have relatively high administrative costs and pay high rates for coverage.
Congress could address some of those concerns by basing the excise tax on a measure of benefits package actuarial value rather than on the cost of the package, the actuaries write.
Congress also could consider imposing the tax directly on employers or employees, to have a more direct effect on their buying decisions, and it come up with a mechanism for shielding small employers from some or all of the effects of the tax, the actuaries write.
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