The term Cadillac health insurance has been thrown about in the healthcare debate lately. Some people do not understand what this term means. I was confronted by this fact in an awkward way when an acquaintance defined Cadillac health insurance as the federal governments plan to insure GM workers now that the government controls the company. Everyone laughed except the person who said it because she was serious
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So what is Cadillac health insurance?
Well first lets update the youngsters who might not know that Cadillac (a division of American automaker GM) was once considered the best, most luxurious car one could own. The name was once held in such high esteem that it was used as an adjective to describe the quality of other things. For example one might have said RCA is the Cadillac of TVs. Again this was from a time in America before imports eclipsed American manufacturing.
So what does that have to do with health insurance?
Nothing really except that who ever coined the term Cadillac health insurance was using the brand name Cadillac to denote high quality as in the example above.
So even if Cadillac health insurance = really good insurance why is that important to the healthcare debate?
Glad you asked. The answer has to do with income taxes. When an employer pays an employee the employee pays tax on that income. But there are other ways to compensate employees besides paying wages. One other way is by providing benefits such as health insurance. The government currently does not tax that compensation. That policy came to be because it was thought that having more people insured by their employers was a benefit to society. Because of that tax policy there was an incentive for employees and their unions to negotiate for more and more extensive health coverage because that type of compensation was nontaxable.
Now that the entire American healthcare system is being looked at for reform many have noted that if this type of compensation were taxable the government would take in more revenues and be able to pay for more benefits (this is a debatable point, fiscal conservatives would argue that higher taxes will not lead to increased government revenue over the long term but well leave it as is for the sake of this discussion). Others suggest that in proposed systems that seek to expand the number of people covered it would be reasonable to tax those whose health plans provide better coverage than whatever baseline coverage is achieved. Consequently there are proposals to tax these high benefit health plans, i.e. the Cadillac health plans.
Just a few notes to finish up:
A major source of discord among the proponents of taxing the Cadillac plans is that many unions have spent decades bargaining for these plans for their memberships (ironically the auto industry is having a lot of difficulty living up to its contracted Cadillac plans). They dont want to see this benefit reduced by taxation. There have been proposals to exclude union and government workers for any new taxes on health benefits which has raised some glaring questions about fairness.
Another source of controversy that comes from the proposals to tax only the high benefit plans, the Cadillac plans, rather than all currently nontaxable benefits is the question of whether the government should have any role in setting the bar for what constitutes acceptable or baseline coverage with any benefit beyond that being taxable. This would have the effect of causing the insurance industry (should it continue to exist) to have little to no market for any plan that provides more benefits than the baseline. In other words the government will have mandated the extent of benefits allowable. Anyone who wished to purchase more or wished to give more to their employees would be hard pressed to do so.
