Public Options and Cadillac Plans

With health reform having made it through the five key Congressional committees, it’s becoming increasingly clear that health insurers are on their heels. In fact, despite the widely held view that the AHIP-PWC report has unintentionally backfired and strengthened political support for reform–even including a public option–the insurers followed their first press release with another one. This time, the study came from the Blue Cross Blue Shield Association rather than AHIP, but as Jonathan Cohn reports, the credibility of the study conducted by Oliver Wyman was no better than its predecessor from PriceWaterhouseCoopers.

One of the key elements of reform to which insurers are opposed is the taxing of so-called “Cadillac Plans.” Their reasoning? These plans are big, expensive, moneymakers for the insurers. If they are forced to start paying a 40% excise tax on the value of every dollar above the government’s cap ($8,000 for an individual plan and $21,000 for a family plan) two things will happen. First, they’re going to see their profits from these plans shrink as a direct result of the tax. For every $100 they bring in over the cap, they’ll be required to turn $40 back to the government. Ouch. More important, however, is the incentive this will create for insurers to walk away from offering such high cost plans. Insurers will be led by financial motivations to slaughter their cash cows. If that seems a little ironic, it’s because it is. The excise tax manages to do a brilliant thing: It capitalizes on insurers’ greed to manipulate their behavior in a favorable direction.

Insurers’ other worry? The return of the public option, which they may very well have facilitated by their own actions. Again, why are they concerned about the creation of a robust public option? Here’s a hint: It’s not because they’re concerned for the Average Joe. Insurers are worried about the very real competitive threat a strong public option would pose to their ability to make outrageous profits and offer policies with suboptimal benefits. Of course, there’s still a lot of room for debate over the public option and what form–if any–it will take as reform goes forward. All that’s certain is that the public option–while not the end-all be-all of reform–is one of the things worth fighting for, and if something has to be fought for, that implies that someone else is fighting against it. I think that the events of the last week have made it abundantly clear (if it wasn’t already) that the insurance companies are the opponent here, which begs the question: Have insurers made enough friends to support them in their fight, or are we watching the desperate displays of an industry about to be completely revolutionized against its will?

Visit B.Wright Consulting