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The Coming Clash over “Cadillac” Plans

GooznerNow that the Senate has passed its version of health care reform along partisan lines, let’s look ahead to  the single biggest issue that will draw the most heat in conference: The tax on so-called “Cadillac plans,” the largest revenue raiser in the Senate legislation.

As regular readers of this blog know, I consider it ill-considered and unfair, a tax on people stuck in expensive plans because they belong to groups with older and sicker beneficiaries who use more health services; small groups generally; or who live in areas with expensive delivery systems. The idea that taxing those plans will somehow encourage people to reduce their utilization is wishful thinking that ignores who actually makes health care decisions — doctors, hospitals,  drug companies, and other providers.

It also ignores why most people use health care — it’s because they are sick. The latest research shows less than 4% of the higher cost of some plans is due to extra benefits. Most of the rest is due to the higher claims of people in those more expensive plans, or the fact that the plans cover people in areas with expensive medicine.

To the extent taxing the excess costs will work in getting people to reduce utilization, the studies shows beneficiaries are just as likely to eliminate needed care like preventive medicine as they are to reduce wasteful spending, which is, don’t forget, ordered by their physician or the hospitals, who are the primary drivers of the health care train.
The tax will do nothing to make providers more efficient or effective in their use of system resources.

Nor will it force insurers to be more circumspect in what they will pay for. Ever since the patients rights rebellion of the late 1990s, they have become nothing more than pass-through agents in the system, taking their cut off the top. That’s what they’ll do with the tax — pass it along to employers, who in turn will pass it along to their
employees.

The economists who argue for this tax ignore all the dysfunctional realities of the health care “marketplace” that I have just described. Those realities make cost control measures that rely on incentive tinkering — and this tax is a prime example — doomed to failure.

In the end, it’s just another tax, one that largely falls on the middle class. Sadly, President Obama rotely repeated the economists’ logic in his interview with NPR yesterday.

In yesterday’s Roll Call, Washington & Lee health law professor Timothy Jost and Case Western Reserve professor Joseph White (a biostatistician and epidemiologist) laid out the case against the tax and offered a logical compromise because they assume, no doubt accurately, that some version needs to be included in the final bill to satisfy both the Senate and the president’s desire that every idea for cost control (even bad ones) be included. They suggest the tax should only be levied on benefits that exceed the premium standard package offered in the exchanges. Then it will truly be a “Cadillac” tax.

Unfortunately, an accurately circumscribed Cadillac tax won’t raise much money. That’s why the House bill is far preferable when it comes to taxation. In the end, this debate is about who is going to pay the higher taxes to provide for the uninsured, not health care cost control. And when it comes to that question, I say — and I dare say hundreds of millions of Americans would agree — that after the past two decades experiment in income maldistribution, the time has come to levy more taxes on higher income households, not on people who are older, sicker and already struggling to pay their bills.

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Nate
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Nate

Yes Allen hospital is receiving checks for $4600 minus co-pay and deductible which in theory they collect from the employee. Welcome to my world, not like I can force the people to drive hours to a bigger facility which is cheaper. Now I can make them liable for a larger portion of the bill if they do refuse to drive further. Well for now I can, this is a perfect example of my liberals attempts to limit out of pocket and lifetime max is so stupid. Allen gets away with charging that becuase the patient isn’t paying the bill. If… Read more »

Barry Carol
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Barry Carol

Margalit – I can’t speak to the rate for a 73321 in Cleveland but I can speak to the rates for a 72146 and 72148 in Central NJ. These are MRI’s of the lumbar and thoracic spine which my wife had two months ago. Each took about 20 minutes to perform. The list price for the 72146 was $1,437 while the Horizon Blue Cross contract rate was $505.35. The list price for the 72148 was $1,424 while Horizon BC’s rate was $499.55. The thing is that neither of these contract rates was determinable by either us or my wife’s PCP… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

Nate, I have no idea what you write on your checks. What providers bill out is totally irrelevant. It all gets adjusted down to earth when the ERAs come in. Here is a concrete example for your consideration: CPT 73221 Magnetic resonance (eg, proton) imaging, any joint of upper extremity; without contrast material(s) Medicare global rate (technical + professional components) in Ohio for participating providers is about $400 (non par is only a few dollars more). According to that website you posted, the prices quoted in Cleveland are between 3 times Medicare (most imaging centers) to more than 10 times… Read more »

Nate
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Nate

not sure how to respond to this, on the one hand we have Margalit who proclaims; “No insurer pays those amounts for the listed procedures.” Then on the other hand there are the checks I write. Do we beleive Margalit who has nothing but her liberal arrogance to support her claim or do we beleive the paper checks that I put in the mail that actually pay those bills? No wonder healthcare reform is so tough! Margalit I’m not asking you to assume anything, being a liberal I know your not familar with them but there are these things called… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

Nate, those numbers are bogus. No insurer pays those amounts for the listed procedures. You are asking me to assume that all facilities bill out at the same inflated rates, and extrapolate from that a comparative cost scale without knowing exactly what the costs are. I have seen enough claims from enough providers to know that this assumption is incorrect. Some providers bill out 4 and even 5 times what the contractuals are and others not even twice. Barry’s post above, regarding the $1800 MRI for which the payer only paid $475, is a readily available example. If I am… Read more »

Barry Carol
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Barry Carol

Nate – As I think you know, I’m a big fan of price and quality transparency as well as price shopping where practical, especially for expensive surgical procedures that can be scheduled well in advance. The biggest impediment, I think, is that actual contract rates are not generally available to the general public, referring doctors or insured members themselves. At best, sometimes you can get a general range of likely costs for a specific procedure. The biggest argument I hear from insurers as to why confidentiality agreements need to be sustained is that disclosing contract rates could just as easily… Read more »

Mr. Mercer
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As a mid-market business owner what are you looking for in a chief financial officer?Expert Witness Even though you may not have the revenues to hire one on full time it does not mean you do not need the help of an experienced chief financial officer. B2B CFO had been around for over 20 years. You can hire them on part time to help you with your financial needs. Even though they are only working for you part time they will help to create a long-term business relationship with you. Their goals are your goals. Let them help you keep… Read more »

Nate
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Nate

Margalit, “In short, I’m not really clear on how to comparison shop based on bogus numbers,” You start by saying you don’t know how to read the data and then go on about how little you know about the subject matter. Then to wrap it up you call the numbers bogus because your not able to grasp it? If you don’t understand the subject matter just leave it at that, you don’t get it, how can you dismiss the facts as bogus? This is actually very common from your side just usually a little less brazen. Apparently like Gary your… Read more »

Nate
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Nate

Gary you rputting your foot in your mouth again. Didn’t we just go through this? If you don’t know what your talking about research it then post. If you post stupid comments I’m going to call you stupid. “Just five years after the HMO Act of 1973 was signed into law, the U.S. Senate Committee on Human Resources, Subcommittee on Health and Scientific Research, held a hearing to discuss amending the Act. Following are excerpts from Senator Ted Kennedy’s opening statement at the March 3, 1978 hearing: “As the author of the first HMO bill ever to pass the Senate,… Read more »

John R. Graham
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Conservatives haven’t really weighed in on the “Cadillac” tax. Good: Let the unions fight their own battle. It is a tax hike, which any conservative should oppose. However, if it were re-cast in a different bill, it could be used to fund a universal tax credit or voucher, which would reduce Medicaid and SCHIP dependency. Indeed, lest we forget, this is the path Senator McCain took in his presidential campaign, and which I discussed favorably at the time (http://tinyurl.com/53n4x2).

Margalit Gur-Arie
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Margalit Gur-Arie

I don’t think that free market supporters ignore Adam Smith’s theories. I think they actually count on them to be applicable in health care with the firm belief that the invisible hand will make things right for both suppliers and consumers. The fallacy here is that health care is one of those rare items that although they have easily calculated costs, they don’t have easily assignable prices. In many ways national defense is very similar. One can calculate the cost of maintaining armies, but what would be the price a nation would be willing to pay if armies were for… Read more »

Margaret
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Margaret

“The problem isn’t government per se, but our government and our private enterprise, the intersection of government and private enterprise, and the misinformed public that keeps being led by interest groups to support policies that hurt it.” Agreed. Private insurance companies manage very well in most other countries with universal care…because they operate in a framework that places patient care as the first priority. In Germany for example, is much more privatized than here in the US, and delivers universal care for much less. Even Switzerland, which implements universal care through 100% individual, private coverage, spends less per capita. The… Read more »