Cadillac Mechanics

Most people won’t have a Cadillac health care plan.  The threshold for Cadillac taxes to kick-in are fairly high at 180% the average individual plan total premium level or 180% average family plan coverage.  Cadillac taxes don’t start until 2018, so everything right now is speculation dependent on plan design choices as well as aggregate health care inflation rates. 

But as a quick check, if you are curious, people should look at box 12DD on their W2.  If you have single coverage, and the number is greater than $8,500, there is a decent chance this plan absent signficant changes will have at least a dollar of Cadillac coverage in 2018.  If you have family coverage, Cadillac coverage is a decent probability if the 2013 box 12DD value is greater than $24,000.

So what does a real Cadillac plan look like? 

Let’s look at Texas’s favorite asshole’s health coverage.

A spokeswoman for the senator confirmed Cruz’s $20,000 coverage plan with the paper. “The senator is on his wife’s plan, which comes at no cost to the taxpayer and reflects a personal decision about what works best for their family,” Catherine Frazier said. 

According to a 2013 Kaiser study, the average for a employer-provided family coverage plan is $16,351. A 2009 New York Times report shows that Goldman Sachs’ plans for executives and managing directors are worth double the average plan–more than $40,000 annually in premiums for each family. 

 This is a plan with 24/7 on-call doctors who treat only a very limited number of patients, minimal restrictions on services, minimal restrictions on network and an attitude that money does not matter, keeping the Galtian overloads happy is what matters.  It is an extreme case, as there are Cadillac plans which are very comprehensive plans for older and sicker risk groups in very high cost areas (like SW Georgia) that would also qualify as Cadillac.

But the mechanics are simple.  Let us assume the Goldman Sachs’ plan has a total cost of $40,000 a year for family coverage.  The Cadillac threshold would be $27,500.  The first $27,500 of the premiums for the Cruz family would be tax free and enjoy an implicit subsidy of $10,800 in tax benefits.  The Cadillac margin is the premium minus the threshold.  That margin is $12,500.  At a 40% excise tax, the government would levy a tax of $5,000.  The Cadillac threshold is indexed to change at CPI-U+1 for the first two years and then CPI-U in the out-years.  CPI-U is the base measure of inflation for urban residents and it tends to be increase at a lower rate than healthcare inflation. 

The economic thought is that most if not all of the excise tax will be passed along to the employee which will create a strong pressure group for high end cost control. 

There are two goals with the Cadillac tax.  The first is to raise revenue for the government in order to pay for the affordability tax credits.  The second is to encourage firms to engage in legal tax avoidance by finding ways to get under the threshold or minimize the size of their Cadillac margin.  If firms can begin to reduce the size of these plans, that is seen as a significant public policy win as that means there are more payers that are willing to say no.  More payers willing to say no to some providers means there should be a downward pressure on per-unit pricing.  Saying no can mean narrower networks, and it can also mean fewer elective and ineffective procedures. 

These two goals are in tension (much like the use of raising cigarette taxes to pay for CHIP).  If the taxes are high enough to produce significant revenue gain, they will produce significant behavioral gain that will move people away from smoking and away from high cost plans.  I think solving the revenue problem in 2025 is a good problem to have if healthcare spending grows at or below the rate of the general economy for a decade or more.

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20 replies
  1. 1
    Lee Rudolph says:

    there are Cadillac plans which are very comprehensive plans for older and sicker risk groups

    Sorry, you’re just wrong there. Some groups may be older than Goldman Sachs executives, but no one is sicker.

  2. 2
    Richard Mayhew says:

    @Lee Rudolph: touche

  3. 3
    aimai says:

    @Lee Rudolph: Hi Lee! As always, quickest with the quippest. And thank you, Richard, for this explainer. I just read it and the previous post on Cadillac Plans out loud to Mr. Aimai. We were just looking at the cost of our plan through his employer as we filled out FAFSA for our offspring so we actually knew “the number” in the 12DD form off the top of our heads. We’ve never had to know what that number was before, or grasped what it meant.

    Mr. Aimai is not a reader here and missed your explanation, if you gave one, of just why Academic Hospital cost fees are so high. IIRC the reason is that people want to/are willing to pay more for name brand hospitals. And they use the lower cost health care marketed at a higher price to pay for the higher cost cancer/heart/ whatever care. is that correct? I am assuming that an “Academic” hospital is also being subsidized in other ways by the taxpayer?

  4. 4
    Richard Mayhew says:

    @aimai: Academic hospitals have a couple of different things going on for their cost structure. A good chunk of it is that their Medicare fee schedule is a bundle of different things, of which only part of it is treatment costs. Medicare tends to set the baseline for negoatiations for private insurance, so a high baseline Medicare level usually means very high commercial rates. Throw in reputation and positional games, academic medical centers that do a couple of things that no one else does in a region use that as a signifier of excellence which justifies their very high costs for the mundane day to day procedures which is where they make their “keep the doors open” revenue.

  5. 5
    La Caterina says:

    The non-profit where I work has a plan that will probably trigger the excise tax. We are an older, sicker group in a high cost area and our coverage is not like the Goldman Sachs plan you described.

    For those at the lower end of the pay scale in our organization, the tax on a family plan will blow a gaping hole in the family’s budget. These workers cannot choose a less expensive option to avoid the tax, it’s all or nothing. Is there any relief for them in the ACA or will they be stuck? This is effectively a pay cut for all of us, as we have exchanged lower salaries for better health care in our bargaining with the employer.

  6. 6
    aimai says:

    @La Caterina: Wow, La Caterina, I hope Richard answers. This is a difficult situation to be in.

  7. 7
    aimai says:

    @Richard Mayhew: Also, thank you Richard. That’s what I thought minus the information about Medicare and its pricing.

  8. 8
    p.a. says:

    Hmm. My union-bargained, corporate self-insured, Anthem Blue administered plan is valued at $8,800- $50/month individual premium ($100 for smokers) and $1,000 deductible. $20 copay. Know I’m spoiled compared to so many, but it has always seemed like a Corolla plan to us.

  9. 9
    maximiliano furtive, formerly known as dr. bloor says:

    This is a plan with 24/7 on-call doctors who treat only a very limited number of patients, minimal restrictions on services, minimal restrictions on network and an attitude that money does not matter, keeping the Galtian overloads happy is what matters

    An elegant illustration of what insurance companies really mean when they furrow their brows and consider the “Medical Necessity” of a procedure: If you pay them enough money in premiums each month, it’s “necessary;” if you don’t, it isn’t.

  10. 10
    KithKanan says:


    Since small group plans will be community rated but then age-adjusted, I’m really hoping the Cadillac tax for small group plans will be based on a standard population. Otherwise, it seems like small groups with older members would be unfairly subject to the tax.

    Just looking at the rates for my company’s current (2013) plan offerings:

    The best platinum plan hits your threshhold for ages 50+
    Both the platinum and platinum-gold plans hit for ages 55+
    Even my current plan which I’d call bronze-silver hits for ages 60+, along with the more generous of the two HSA-compatible options.
    Even the worst bronze plan hits for ages 65+

    Now, this is 2013 plan year, and it looks like the age rating bands have about a 4.5:1 to 5:1 difference, so 2014 plan year and beyond when that is mandated to be 3:1 will be a bit different, but it still shows how easily a small group plan with older members could run into Cadillac territory.

    It also seems to be one more disincentive for companies to hire older workers if they can get away with hiring younger, as if there weren’t enough already.

  11. 11
    Patricia Kayden says:

    “This is a plan with 24/7 on-call doctors who treat only a very limited number of patients, minimal restrictions on services, minimal restrictions on network and an attitude that money does not matter”

    It must be nice to be rich because I’d love to have a doctor on-call all the time. How does Cruz have the nerve to vote to repeal the ACA given how well off he is?

  12. 12
    Richard Mayhew says:

    @Patricia Kayden: Fuck you, I’ve got mine you lazy moocher

  13. 13
    cleek says:

    i know my employer is freaking out about the Cadillac tax. we’re a largish software company and we don’t look to be older or sicker than any other company, we just get good benefits.

    it’s hard to see what they’ve done/will do to address the expense, since insurance plans always get more expensive for employees, no matter what happens. those extra co-pays and higher premiums and deductibles we got this year don’t seem much different than what we get every year.

  14. 14
    Mnemosyne says:

    @La Caterina:

    IMO, this is one of the downsides of the small business exchange not being up and running yet — it’s going to be more complicated for you guys to compare different plans and see if you can get a better deal for another company.

    The Giant Evil Corporation I work for did some rejiggering of its plans for 2014 that was probably designed at least in part to keep us all under the Cadillac limit. My box 12DD for 2013 was slightly under $7,000 (for demographics, I’m female, no children, non-smoker, turning 45 this year, living in Los Angeles county).

    One of the things they did to keep costs down were to restrict the network for the “gold” plan — basically, if you need out-of-network care (except in a certified emergency), you’re on your own. They also introduced a “bronze” plan with a high deductible/HSA combination and the GEC deposits about half or 2/3rds the cost of the deductible directly into the employee’s HSA. I’m assuming that, when they do that, it’s taxed slightly differently on the corporate side so it doesn’t affect the “Cadillac-ness” of the plan.

  15. 15
    Mnemosyne says:

    And now that I’ve posted about HSAs, I’m wondering if there’s a loophole there that companies can use to get around the Cadillac tax. The GEC was pushing the Consumer Choice (ie high deductible) plan really hard.

    (I ended up not going for it because I have a couple of daily prescriptions that were going to mean I would hit the deductible by about April every year instead of paying a copay, so it wasn’t worth it to me, but having them put cash money directly into an HSA to cover most of the deductible was pretty tempting.)

  16. 16

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  17. 17
    Ripley says:

    Sorry, Texas’ Favorite Asshole, but the terms “Goldman Sachs” and “at no cost to the taxpayer” can’t exist in a sentence together. Causes rumblings of cosmic irony.

  18. 18
    KithKanan says:

    @Mnemosyne: Not directly (that I can tell). Employer HSA contributions (and employee contributions made via paycheck deductions) combine with the health insurance premiums for Cadillac Tax purposes, so if they’re steering you towards the HSA I’d think it’s because it’s cheaper for other reasons.

  19. 19
    IdahoFlaneuse says:

    So how does this work for health insurance associated with retirement income? MrFlaneur has two retirements and both have health insurance. He pays premiums on one which I assume is just a portion of the cost and nothing for the second policy. The second policy covers both of us. Nothing on his tax documents tells us of the value of the plan so we don’t know if either are Cadillac plans. I think the one I am on is a great plan, low deductible, cost sharing and out of pocket limits.

  20. 20
    mclaren says:

    Once again the superwealthy health insurance oligarch Richard Mayhew is lying to you.

    The economic thought is that most if not all of the excise tax will be passed along to the employee which will create a strong pressure group for high end cost control.

    This makes no sense at all — unless the purpose is to ration care.

    Naturally, that’s the bottom line in Shithole America’s “plan” for reducing health care costs. Instead of reducing the price of individual medical procedures, reduce the usage of America’s insanely overpriced medical procedures.

    But of course essentially every sick person in America goes to the hospital not because they enjoy it, but because they have to go to the hospital or they’ll die.

    So the bottom line here is, as usual, a bottom line that the health insurance oligarch Richard Mayhew doesn’t want to talk about. The real purpose of this law (like essentially all of the non-reform “reforms” of America’s broken health care system) is to kill sick people.

    This is how America plans to save money on health care. Instead of reducing the price of the medical procedures, prevent people who need health care from getting it by making it too expensive for the individual who needs the health care.

    The key feature of this kind of non-reform “reform” is to create the illusion of reform while actually preventing Americans from getting the health care they need. This is simple — just make the co-payments far too expensive for ordinary people to afford, make the state medicaid requirements too stringent for anyone who isn’t homeless to get on medicaid, tax the high-quality health insurance plans until no one can afford a high-quality health insurance plan, and the only insurance plan any average working stiff can get is one of those scam insurance plans where a sick person goes to see the doctor and gets billed but never actually gets to see the doctor and never gets any treatment.

    It would be hard to overstate how badly public policy has gone wrong in the arena of American health care, but here’s a remarkable personal experience to suggest the outlines of the problem. In November, too sick on a Saturday night to wait for Monday, I went to the dreadful emergency room in my own neighborhood. It was my first—and last—visit to the place, and almost nothing at all happened: a nurse practitioner asked some questions, ordered some tests that he told me, as he sent me home, he hadn’t gotten around to reviewing, and suggested that I try to see a doctor on Monday. No diagnosis, no treatment, no doctor.

    A month later came the punch line: an EOB to let me know how much of the emergency room physician’s $540 bill my insurance company had paid. The doctor on duty that night in the ER, having never seen me or spoken to me, billed me for her services.

    After a fruitless exchange of letters, I called the California Medical Board, traveled around the phone tree, and spoke to a regulator. She explained the rules for billing by a doctor for services provided by a nurse practitioner. The doctor sending a bill has to `supervise’ the NP, but doesn’t have to be physically present to do it—not even in the same building—and only needs to review `some percentage’ of the NP’s patient charts.

    This is a scam, `supervision’ without supervision. To be sure, it does cut costs—it cuts the cost for the provider of medical treatment, but without cutting the costs insurers and patients pay for service. It’s a profit-enhancer, not a delivery system for cheaper medicine. A nurse practitioner treats patients, and a doctor who may or may not be in the building sends a bill. State law and regulation cheerfully embraces the practice, and doctors get paid without the unnecessary hassle of actually seeing patients or providing them with medical care.

    Source: “Health Care Reform Does Not Mean Better Actual Health Care, Sorry,” The Baffler, 27 February 2014.

    This is the ultimate goal of thieving oligarchs like Richard Mayhew: to convert all health insurance plans into a scam plan where a sick person goes to see the doctor and gets billed but never actually gets to see the doctor and never gets any treatment.

    What the ACA and Richard Mayhew aren’t telling us is that “Cadillac” is a code word for “adequate.” The goal of non-reform bills like the ACA is to tax out of existence adequate health insurance, and substitute scams like the one described in The Baffler article. That way, all doctors will get the cash without having to do inconvenient things like see patients or give them treatment for their illnesses.

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