Tax on High-Cost Health Insurance Plans


Some lawmakers want to place a tax on high-cost, so-called “Cadillac” health insurance plans to raise money to help pay for health care reform. Others say such a move will hurt the middle-class, resulting in higher health insurance premiums and thus running counter to what health care reform reportedly is trying to achieve.

The American Health Insurance Plans (AHIP), the main lobbying group for the US health insurance industry, released a report October 10-11 entitled “Potential Impact of Health Reform on the Cost of Private Health Insurance Coverage.” The report states, among other things, that the current healthcare reform proposal will increase health insurance costs even more than if no legislation is passed. The AHIP has issues with many of the provisions in the current proposal, including the “Cadillac” plans, which the trade group says will result in insurance companies passing their tax costs onto consumers.

Advocates for the tax on health insurance plans argue that the tax, which will be imposed on health insurers, would provide more than $200 billion, which is about 25 percent of what is necessary to pay for the proposed healthcare legislation. They also insist the tax will encourage employers and employees to purchase less expensive health insurance plans.

Dissenters, who include House members, business, and labor unions, say that the tax would raise health insurance premiums or costs among middle-class consumers. Purchasing a lower cost health insurance plan, for example, could involve much higher deductibles and copays, resulting in higher costs for consumers.


If the tax on high-end health insurance plans is passed as it now stands under the Finance Committee bill, the tax would begin in 2013 and be imposed on employer-sponsored health plans that have total premiums greater than $8,000 for individuals and $21,000 for families. Rather than send employers scrambling for lower cost health insurance plans, critics of the proposal say the move would increase premiums or out-of-pocket costs for employees for their health care.

How many health insurance policies would be affected by the proposed tax? The Congressional Joint Committee on Taxation estimates that when the tax is initiated, 14 percent of family policies and 19 percent of individual policies would feel the tax. These numbers are expected to rise to 37 percent and 41 percent, respectively, by the year 2019, because health insurance premiums are expected to rise faster than inflation.

In a October 12 New York Times article, James P. Gelfand, senior manager of health policy at the United States Chamber of Commerce, noted that passage of the tax on high-cost health insurance policies will force employers to lower wages, reduce employee benefits, or increase cost-sharing. At least half of the members of the Communications Workers of America would be impacted by the tax in 2013, according to Larry Cohen, president of the group.

Like so many provisions in the proposed healthcare reform legislation, a tax on high-cost health insurance plans is a complex issue with ardent advocates on both sides of the question. In the middle of the barrage of claims being tossed back and forth are the American people, monkeys in the middle, waiting for someone to call time out and to explain the real rules of the game that is being played with our health care and our future.

American Health Insurance Plans report
New York Times, October 12 2009