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Penalizing The Disruptive Innovator

Political discussions and policies on healthcare and health insurance are focused primarily on affordability; the affordability of prescription drugs, medical services, and health insurance premiums. And rightfully so: Conduct a simple google search on “health care costs” and you’ll be privy to such headlines as:

  • “61% of Americans are Worried About Rising Health Care Premiums” — Fortune
  • “78% of Americans Concerned About Healthcare in New Gallup Poll” — Healthcare Finance
  • “85% of Patients Concerned about Healthcare Costs, Quality” — Patient Engagement HIT
  • “Why Health Care Costs are Making Consumers More Afraid of Medical Bills than an Actual Illness” — CNBC 

Although cost is certainly a component in the discussion, it is not the ONLY component. According to a 2017 study in the Journal of the American Medical Association (JAMA)five primary factors drive healthcare spending. They are:

1. Population Growth

2. Population Aging

3. Disease Prevalence or Incidence 

4. Service Utilization

5. Service Price and Intensity

More recently, a 2018 JAMA article found that:

  • “The United States spent approximately twice as much as other high-income countries on medical care.”
  • “Utilization rates in the United States were largely similar to those in other nations”

The major drivers of the difference in overall cost between the U.S. and other high-income countries were the prices of labor and goods, including pharmaceuticals, and administrative costs. 

The fact is we’ve heard endless discussion on the affordability of healthcare over the last several years. Despite the obvious targets of fee-for-service reimbursement, fragmentation of care delivery, administrative complexity, rising rates of chronic disease, major advances in expensive technology, deficits in community health, lack of transparency in cost and quality information, lack of competition due to health system and provider consolidation, exorbitant unit prices, legal barriers to cost-effective systems of care, health professional shortages, and the high ratio of clinical specialists, the most potent strategy the federal government has in place to make healthcare more affordable is to tax employers who provide coverage to their employees.  


With the myriad of complex components that are actually responsible for our high healthcare costs, the best solution we can come up with is to tax employers who make healthcare affordable and accessible to their employees and families? 

Of course I’m referring to the ‘Cadillac’ tax, the so-called “high-cost” employer-sponsored coverage excise tax.

Originally slated to take effect in 2018, the tax was delayed once by the Consolidated Appropriations Act of 2016 and then again by a short-term federal spending bill, where it now lurks until 2022. The tax is designed to impose a 40 percent penalty of the total cost of health coverage that sits above a legally specified threshold. Those thresholds currently stand at $10,200 for individual coverage and $27,500 for family coverage but were calculated for 2018 and will be indexed for inflation in future years. The payment structure of the tax requires that employers calculate it and either the carrier or TPA pay it, depending on whether one is fully insured or self-insured. 

Why is this? Why would employers be penalized for providing benefits to help keep their workers healthy and financially secure? They have provided their employees with a layer of financial protection for when and if a health problem arises. They are the stakeholder in the healthcare landscape that is pushing for disruptive innovation in plan design, care delivery, pharmacy, contracting agreements, technology, and cost containment. They are the ones diligently working to make healthcare more affordable!

They provide health coverage to approximately 158 million Americans — a significant portion of the population. Employers should be encouraged to offer the most diverse range of benefits packages to employees without penalty. They should be encouraged to search for disruptive and innovative ways to reduce health costs and improve outcomes.

Making healthcare more affordable doesn’t require a tax, it requires a focus on what’s not working and those factors that are really driving costs within the system. 

Patty Starr bio image

About the author

Patty Starr

Patty Starr is president and CEO of Health Action Council and is responsible for driving the strategic direction of the organization--build stronger, healthier communities where business can thrive. 

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