What Is a Cadillac Health Plan?

A Cadillac health plan has nothing to do with the automotive brand for which it is named, but it does share something important with GM's luxury moniker and that is this plan's many generous provisions for its participants. Cadillac health plans have come under scrutiny as the nation debates health care coverage, a plan some people envy and for good reason.

Definition

• The average health insurance plan costs about $13,000 per year, offering broad coverage on a number of health costs. Under these plans, participants pay some expenses including co-payments to a doctor, prescriptions and other costs before deductibles are met. Under a Cadillac health plan, the cost for participants is two to three times the typical health plan with enrollees having nearly every health cost covered.

Taxation

• In 2009 and 2010, as America debated health care coverage, some members of the Obama administration proposed taxing Cadillac health plans, perceiving that they were a special benefit for employees who had them. The argument was made that if executives at companies such as Goldman Sachs are able to enjoy a Cadillac health plan, then an excise tax should be charged. Those taxes, which would be charged to insurance companies not plan users, would be collected and used to help defray America's multi-trillion dollar health care plan.

Affected Plans

• So-called Cadillac health plans are offered to union, government and private workers, with wealthy and some middle-class employees covered, according to Reed Abelson writing for the Sept. 20, 2009, issue of The New York Times. Under one scenario floated by Sen. Max Baucus, insurers charging more than $8,000 for an individual plan or more than $21,000 for a family plan would be assessed an excise tax of 35 percent. Baucus reasoned that such a tax would cover about one-quarter of the costs of the proposed health care plan and would be levied on insurers who would likely pass their costs on to the insured.

Unintended Consequences

• Opposition to the federal government's proposed taxation of Cadillac health plans came from many quarters including the Service Employees International Union and other unions members. They asserted that rank and file often would often forego pay increases to retain their benefits, thus the higher cost for their plans. Robert Laszewski, president of Health Policy and Strategy Associates, noted "It's the old Washington, D.C., law of unintended consequences. They went after the Goldman Sachs partner and they ended up with the fireman in Brooklyn." Another argument was that union members are generally older and live in areas of the country where manufacturing costs are higher, raising plan costs accordingly. The Obama administration eventually cut a deal with union members to exempt them from a possible Cadillac tax until 2018.