When you hear the word “Cadillac” you probably immediately picture luxury vehicles. Now, imagine you hear the word Cadillac in conjunction with health insurance. What would you think of? Most likely you would think the discussion was going to be about luxurious health care insurance. However, studies have shown that healthcare policies deemed to be Cadillac health insurance policies don’t provide rich benefits to the ones insured by it. Instead, it simply means it is an expensive policy.
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Where did the term ”Cadillac health insurance” come from?
As President Obama leaves office and President Trump takes over, many are wondering what will become of the proposed Cadillac Tax that was originally scheduled to be applied to some health insurance policies as soon as 2018. It was recently postponed to 2020.
While there is a ton of discussion about Cadillac health insurance today, it’s not a new term. It first became government lingo in the 1970s and grew in popularity during the President Clinton presidency.
How to Determine if You Have Cadillac Health Insurance
When taxpayers and insured individuals learn of the proposed Cadillac health insurance excise tax, they immediately want to know how to know if their policy falls under this category. Below, we will go over features of a policy that may be considered Cadillac health insurance.
- Unusually expensive
- Employer-based health insurance
- Insurance is considered a part of the employee’s compensation but is not taxed
- Premiums equal more than $10,200 for individuals
- Premiums equal more than $27,500 for families
How Insured Individuals Use Cadillac Health Insurance
It is believed that an employer will offer an employee a Cadillac health insurance policy to decrease taxes owed. Essentially, this type of compensation is not taxed, so it should be considered a subsidy, but it isn’t. Instead, it is believed that employers chose this type of coverage to encourage employees to enroll in the most expensive plans offered and then encourage the employees to use the insurance excessively.
Employees are happy to use this type of coverage excessively because the way it’s designed allows it to protect them from the actual cost of an expensive health insurance policy. In general, this type of policy is offered to executives and union workers. In the past, both of these industries have managed to negotiate very generous health insurance plans, which benefit both the employee and the employer.
Why Lawmakers Want to Tax Cadillac Insurance
Many lawmakers believe that Cadillac insurance is driving up the cost of healthcare. When President Obama’s administration was looking for a way to pay for Obamacare, they created an excise tax aimed to close the Cadillac loophole and make money for the Federal government.
Why People Oppose a Cadillac Health Insurance Tax
As with any changes in tax, there are many lawmakers that oppose a Cadillac health insurance tax. The first issue many lawmakers, employers, and union leaders have with the tax is that it may prevent them from providing adequate benefit packages to their employees. It may also cause them to scale back benefit packages or eliminate health insurance packages altogether. If the law is allowed to go into effect, it may also cause employers to reduce other services such as wellness programs, on-site clinics, and tax-free health savings accounts.
Another issue that impacts how the tax will be applied is geographical location and the cost of medical care.
The cost of medical health care varies greatly from one area of the United States to another. The proposed excise tax doesn’t take location or cost of care into the formula for determining tax owed.
Lastly, the language in the law allows for more insurance plans to be taxed in the future because the limitations $10,200 and $27,500 are able to increase each year along with inflation. What this means is eventually more and more policies will be hit by the tax.
As one can obviously see from the information above, the law allows for many policies to be captured and levied with taxes. However, it doesn’t take into many factors that make these benefits healthy for those insured by them. It also doesn’t take into consideration deductible and other out-of-pocket expenses paid by those covered by a Cadillac Health Insurance policy.
The Bottom Line
Many are anxious to see what happens with the proposed Cadillac Health Insurance tax. When the proposed tax was delayed until 2020 many began to hope it was the beginning of the end for the tax. As time goes on, even those that initially supported the tax initiative are beginning to wonder if it would do more harm than good. On the other hand, if the tax isn’t put into place at some point, how will the government continue to support the tax subsidies provided by the Affordable Care Act.
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