Do ‘Cadillac’ Plans Equal Cadillac Benefits?
December 3rd, 2009
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Health Affairs
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Editor’s Note: For more on the controversy over taxing high-cost health plans, see a “Cadillacs Or Ambulances? The Senate Tax On ‘Excessive Benefits, a Health Affairs Blog post by Joseph White and Timothy Jost published today.
The Senate Democratic health plan includes a provision, backed by the Obama administration, that would tax some “Cadillac” health plans to pay for health care reform. One widely held assumption is that high-cost plans are expensive because they offer superior benefits.
However, in a Health Affairs Web First article released today, Jon Gabel of the National Opinion Research Center (NORC) and coauthors report that other factors – regional differences in health care delivery cost and the industry sector offering the coverage – were important reasons for higher plan costs.
The authors studied a national cross-section of these employer-sponsored individual plans and used data obtained from the 2007 Kaiser Family Foundation/Health Research and Educational Trust (KFF/HRET) survey. The authors found that two powerful variables affected the actuarial value of a plan: (1) the industry offering the plan and (2) the geographic cost index of the company’s home base community. The authors concluded that as a public policy matter, “efforts to limit deductibility of employee benefits should make adjustments for these two factors…Our inquiry suggests, however, that analysts should not equate high-cost plans with Cadillac plans….Without appropriate adjustments, a simple cap may exacerbate rather than ameliorate current inequities.”
Comparing Individual-Market And Employer-Sponsored Coverage
If the new health reform legislation proposal passes, nearly all Americans would be required to purchase health insurance and the individual insurance market as we now know it would end. A second Health Affairs Web First article released today provides one of the first national comparisons of the costs of policies purchased currently in the individual market with those of employer-sponsored plans. Roland McDevitt of Watson Wyatt Worldwide and coauthors used the same 2007 KFF/HRET data as the previous study to evaluate employer-sponsored group plans; the information about the individual plans came from a survey of individual insurance plans in ten states.
Some key findings:
Employer-based plans pay for 80 percent of a member’s medical costs compared to 64 percent of a member’s costs in an individual plan.
- Individual plans had higher deductibles than employer-based plans — $2,100 on average compared to less than $600.
- Limits on out-of pocket expenses for employer-sponsored plans were lower than individual plans: $2,171 versus $5,271.
- Employer-based plans were far more affordable than individual plans: an individual in an employer-sponsored plan paid $1,422 per year in premium plus out-of-pocket expenses; this compares to $3,165 for a 25-year-old and $6,207 for a 55-year-old purchasing individual plans.
- Some key benefits, such as coverage of maternity care, are nearly universal in employer-sponsored plans – but not included in 57 percent of individual plans without an additional premium.
- Without the option of an employer-sponsored health plan, individuals are less likely to be able to pay for health care coverage. For those Americans with an income at twice the poverty level ($21, 574), all but 18 percent of those with access to employer-sponsored health plans spent less than 10 percent of their income on premiums and out-of-pocket medical expenses. By contrast, the vast majority of this income group lacking access to employer-sponsored health insurance spent more than 10 percent of their income on premiums plus medical services: 62 percent of the 25-year-olds and 99 percent of 55-year-olds.
Both studies are funded by The Commonwealth Fund.
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