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Senate health bill targets ‘Cadillac’ plans
Legislation would impose 40 percent tax on premiums above threshold
 | Kindergarten teacher Kinzi Blair stands in her classroom Thursday at an elementary school in San Jose, Calif. A Senate health reform bill includes an unprecedented tax on the health insurance of people like Blair, who has what many would consider a “Cadillac” health plan. |
Paul Sakuma / AP |
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Schoolteacher Kinzi Blair makes only $46,000 a year, but she has what many would consider a "Cadillac" health plan, now targeted for a big tax increase by health reformers.
She has $10 copays and no deductible. She gets generic prescription drugs for $10. Her plan covers mental health counseling, organ transplants, acupuncture. It covers speech therapy for preschoolers and in vitro fertilization.
Sound pretty good?
It surely must to millions of Americans who pay high deductibles, hundreds of dollars for prescription drugs or who have no insurance at all. Blair's circumstance illustrates the debate over taxes and fairness when it comes to health reform.
"For me, it's security," Blair says. "I'm thankful I'm in a job where there is health insurance."
Taxing plans like hers is unfair, says Blair, a kindergarten teacher in San Jose, Calif. Like 57 percent of Americans surveyed in a recent Associated Press poll, she favors a new income tax on wealthy Americans, which the House would impose in its bill to pay for expanding insurance coverage to millions.
But the Senate takes a different approach, including an unprecedented tax on the health insurance of people like Blair. The Senate plan would also increase the Medicare payroll tax for high-income Americans and tax elective cosmetic surgery.
The tax on high-dollar health plans would hit only a few very wealthy Americans and many more in the middle class, experts agree. But it also might bring down health care costs by discouraging companies from offering coverage with so many benefits.
Whatever method is chosen to pay for health reform, Congress and President Barack Obama must persuade Americans about its fairness. When it comes to taxes, Americans are hard to convince.
A 40 percent tax
The Senate Democrats' bill, unveiled last week, would impose a 40 percent tax on insurance premiums above $8,500 for an individual and $23,000 for a family. Those thresholds represent the total paid by both employer and employee.
Blair's premiums cost $11,000 so her insurance company would be taxed 40 percent of the premium that exceeds $8,500 — a total tax of $1,000.
The Senate bill also would increase the Medicare payroll tax to 1.95 percent on income over $200,000 a year for individuals and $250,000 for couples.
Most Americans don't know whether the tax on health plan premiums would hit them or not, says John Desser, a health policy adviser to John McCain during his presidential campaigns who now coordinates public policy for eHealth Inc., an online marketer of health insurance.
"I don't think most American have any idea what the cost of their premiums is. And I don't think most Americans know that the cost of their insurance could go up as a result of this legislation because we're making it more fair for people who have been treated unfairly in this system," Desser says.
The idea is that taxing high-cost health plans would discourage unnecessary health spending and pay for reform out of the health care system itself.
Blair's health plan would be taxed under the Cadillac tax proposal. Here's how her plan stacks up with an average one:
- Blair's annual premium (paid entirely by her employer): $11,000.
- Average U.S. premium for employer-sponsored individual plans (usually split between worker and employer): $4,824.
- Blair's annual deductible: $0.
- Average U.S. deductible for HMO plans: $699.
- Blair's office visit copay: $10.
- Average U.S. copay: $20.
The numbers cited above for employer-sponsored plans don't reflect people who buy their own health insurance. They usually buy plans with high deductibles, around $2,000, and low monthly premiums — that's the only way many people whose employers don't provide health benefits can afford insurance at all.
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