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View Diary: My soon-to-be unpopular diary on Cadillac insurance (110 comments)

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  •  All the talk I've seen (0+ / 0-)

    about taxing health plans does not discuss whether or not you (or your employer) are actually paying $12,000 or more for a health insurance plan. What is usually meant by those who discuss so-called 'Cadillac' insurance and propose that it be taxed is if they think that someone buying insurance on the individual open market from a private, for-profit insurance company would pay $12,000 or more to cover a family of four at that benefit level.

    So say your insurance, provided by your employer, is $400 a month, but your employer covers you. That's $4800 a year that is being paid on your behalf. However, the employer is large enough that it is able to negotiate a discount rate with the insurance company, something you cannot do on your own, and if you bought an insurance policy for the same benefit level, you'd pay a premium of $1100 a month. (Not out of the question, by any means.) In fact, let's get unreasonable and say that you'd pay that much to cover your family of four. Most family premiums I've heard of are a lot higher than that these days on the individual market, so it is quite possible that a family of four might well pay much more for a plan if purchased as an individual family policy rather than purchased through the greater aggregate buying power of a large employer.

    You pay $1100 a month for your family of four to be insured. That's, say, $400 each for you and your partner and $150 for each child. Congratulations! You have 'Cadillac' health insurance.

    Now let's say that you work for an employer with a particularly enlightened set of corporate values; your employer pays not only for YOUR health insurance, but for that of the rest of your family. So the employer is now paying for your $1100 a month worth of health insurance. However, the employer is only paying $300 a month to the insurance company to cover your entire family. It doesn't matter; the "value" of that insurance on the open market is $1100 a month. Congratulations! You have 'Cadillac' helth insurance that is going to be taxed on the imaginary value over $12,000/year because the insurance company is assuring that you can't get a plan on the open individual market for less than that that covers the same level of benefits. Nevermind that your employer is paying $3600 a year. You're getting $13,200 "worth" of health insurance in someone's mind, so you're going to pay real taxes in real dollars on imaginary value.

    That is what people are complaining about. That's why they're protesting.

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    by Kitsap River on Sun Jul 26, 2009 at 05:59:35 PM PDT

    [ Parent ]

    •  Kitsap, the reason why I think the president (0+ / 0-)

      is talking about "cafeteria" insurance (tax-sheltered) is because as you know, if you buy insurance on the open market as an individual, you do NOT get to offset that income as being exempted from taxation. My understanding of what the administration has been talking about is that they are referring to those people who have insurance through their employers, and have it set up in such a way that it is completely tax-sheltered. There isn't anything wrong with that. In fact, as I mentioned it the rant, in one of my last jobs, I was getting health insurance through a cafeteria plan (I think they're called cafeteria plans because usually they're lumped in with some other benefits, like retirement, and employees get to do some picking and choosing over what kind of insurance and retirement plan they want to be in, like choosing off a menu). So I had probably 3 or 4,000 dollars a year in income that, when I got my W-2 from my employer, would be in a box that was for money that I had earned but wasn't taxable. The part where it gets perverse is that some people are not only getting tax-exempt insurance (which isn't perverse), but they're getting grossly overpriced insurance (which neither they nor their employers are worried about, because it's a tax write-off for both, and it's cheaper than the compensation they'd need to offer if they were compensating through salary, rather than salary plus benefits).

      Sorry. Long-winded, I know, but you bring up a good point in terms of why all of this is very confusing for everyone.

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