'Cadillac' Insurance Plans Explained

by VR Sreeraman on Sep 22 2009 12:40 PM

A "Cadillac" or "gold-plated" insurance plan is expensive coverage, usually defined by the total cost of premiums, rather than what it might cost the patient to get health care.

People who have Cadillac plans often have low deductibles and excellent benefits that cover even the most expensive treatments, but this is not always the case. Premium costs can be high for reasons other than generous benefits, including the age, gender and health status of the customer. In an employer-based plan, premiums are based on the pooled risk of employees and may be higher if many of the employees are sick, older, predominantly female or live in a region with expensive health costs. Such people may be paying Cadillac rates for clunker coverage.

How many people have high-premium plans?

Lawmakers are still grappling with what premium price is considered "gold-plated." The legislative outline proposed by Sen. Max Baucus, D-Mont., chairman of the Finance Committee, sets the threshold at $8,000 in premiums for an individual and $21,000 for a family. It is estimated that between 2 and 3 percent of covered workers and families would hit that threshold today.

This year, the total cost of the average family policy offered by employers was $13,375 according to the Kaiser Family Foundation.

Although news accounts have frequently described Cadillac coverage as plans catering to Wall Street titans, with annual premiums of $40,000, not everyone with high-cost coverage is very wealthy or even especially well off.

Some union workers and employees of businesses with a preponderance of older or sicker workers may also have premiums in the Cadillac range.

How will the health overhaul proposals affect people with Cadillac plans?

The Baucus proposal would tax insurers for policies with premiums above the thresholds. The goal of the provision is twofold: to generate revenue to help pay for covering the uninsured; and to make the most expensive plans - which some argue encourage overuse of medical care - less attractive. The thresholds would increase as the nation's overall rate of inflation goes up. But since health insurance costs increase much faster than inflation, more plans could end up being taxed as time goes on, if nothing else changes.

Although the tax is supposed to be imposed on insurers, the effects are likely to trickle down to consumers. Insurers might tinker with benefits, for example, by increasing deductibles to reduce premium costs to below the threshold. In addition, more than half of employees with insurance work for companies that "self-insure," meaning the firms pay for their workers' health bills on their own. These employers would be required to pay the excise tax themselves and could pass the tax on to workers in the form of higher premiums or lower wages.

Employers paying Cadillac premiums because they have a sicker workforce may see costs go down since all of the proposals would prohibit insurers from charging higher rates based on health status

Source-Kaiser Health News