Health policy tax dings more than Cadillac plans

  • Article by: REED ABELSON , New York Times
  • Updated: September 20, 2009 - 10:48 PM

Max Baucus' idea for an excise levy on high-end coverage would affect many lower-tier plans - likely raising rates.

Although cast as a tax on gold-plated insurance policies for the well-heeled, it has prompted anxiety among the middle class.

The idea, proposed by Sen. Max Baucus, D-Mont., on Wednesday, is to help raise money for the nation's health care overhaul by placing a new excise tax on the most expensive health insurance policies, such as the ones offered to partners at Goldman Sachs and other affluent professionals.

The tax is meant to raise more than a quarter of the $774 billion needed to pay for the Baucus plan. But, just as much, the tax is intended to discourage the overly generous coverage that many experts say has helped fuel the country's reckless spending on medical care.

As it turns out, though, many smaller fish would get caught in Baucus' tax net. The supposedly Cadillac insurance policies include some that cover many of the nation's firefighters, coal miners and older employees at small businesses -- a whole gamut that runs from janitors to college professors, from union shops to Main Street entrepreneurs.

Under the Baucus plan, insurers selling a plan costing more than $8,000 for an individual and $21,000 for a family would have to pay a 35 percent excise tax on the excess amount.

Although the national average premium is currently $13,375 for a family policy, according to the Kaiser Family Foundation, many are much higher than that -- particularly in high-cost parts of the country.

Nationwide, about one in 10 family insurance plans would be subject to the new excise tax, according to the Center on Budget and Policy Priorities, a liberal-leaning policy and research group.

The tax would be levied on insurers -- or on employers that act as their own insurers. Either way, the tax would very likely be passed along to workers in even higher premiums than they pay now. But if insurance premiums continue to rise faster than inflation, as they have for years, many more people's policies could end up triggering the luxury tax in coming years.

"It puts a bigger tax on middle-income Americans who are already paying enough," said Harold Schaitberger, the general president of the International Association of Fire Fighters. The union says some of its members around the country are in plans that would be subject to the tax.

People who live in high-cost areas, such as the Northeast or California, would also have a greater risk that their insurance plans would trigger the excise tax -- not because their coverage is particularly generous, but because the price of their policies reflects the higher medical costs where they live. Massachusetts residents, for example, tend to pay more than a quarter more in premiums, on average, than people living in Idaho.

The tax proposal has also drawn fire from some of Baucus' Democratic colleagues, including Sen. Jay Rockefeller, who has been an outspoken critic of the overall plan. Rockefeller says he is particularly worried about the impact of the tax on coverage for workers such as coal miners, including those in his home state of West Virginia, and firefighters.

Baucus acknowledges some of the concerns, and plans to work with the other members of the Senate Finance Committee to address them, said Erin Shields, a Baucus spokeswoman. The proposal, she noted, already sets the thresholds somewhat higher in states where coverage is the most expensive.

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