'Cadillac' health plans tax draws skeptics

WASHINGTON - With Congress on the verge of imposing a new tax on high-cost health insurance plans, skeptics continue to raise questions about who would be hit hardest and whether health care spending would be limited as much as proponents say.

The Senate health care legislation includes a 40 percent excise tax on insurance plans worth more than $23,000 per year for a family of four. When the legislation would go into effect in 2014, only a small fraction of all plans would be taxed, but more would be captured over time: roughly a quarter by 2019, collecting about $150 billion over 10 years.

The House legislation instead relies on an income tax surcharge on families earning more than $1 million. But centrist Senate Democrats are opposed to the surcharge, and the excise tax has been endorsed by the White House and many health-care economists.

Supporters of the Senate provision say it would restore some equity in the tax system, which exempts employer-provided health benefits while forcing people who buy insurance on their own to use after-tax dollars. To avoid the tax, supporters predict, employers and employees would shift to less generous plans that would make patients more sensitive to costs, slowing the growth in health care spending.

Employers, the theory goes, would put the savings into higher wages.

But as the tax proposal takes on an aura of inevitability, pockets of skepticism remain, even beyond labor unions, which are often cast as the main opposition because many union plans would be taxed.

Health analysts recently questioned the assumption that the tax would target only the most lavish insurance packages, nicknamed "Cadillac plans." The analysts, writing in the journal Health Affairs, found that some less generous plans could be taxed because they are costly for other reasons.

The location of an employer and the type of industry, for example, have as much to do with the cost of plans as the generosity of the benefits and the kind of plan. Smaller businesses, especially those with a preponderance of older workers, tend to have higher premiums, as do certain industries, including the health care sector.

The Senate bill would phase in the tax more slowly in some higher-cost states and exempt a few industries that tend to have expensive plans, such as mining. But opponents say it is impossible to find a workable way of targeting the tax so it would spare people whose plans are not particularly generous.