As the Senate Finance Committee takes its health care overhaul negotiations into the August recess, President Obama and key Senate negotiators are still struggling to find a way to afford the flagging health care overhaul proposal’s trillion dollar price tag. Their latest proposal, a new tax on so-called “gold-plated, Cadillac” health insurance policies, is receiving broad support from legislators and administration officials who see it as yet another opportunity to pay for an expansion of government by soaking the “rich” – a perception that is, thanks in large part to existing government policies, incredibly wrong.

The term “Cadillac” has been used for years to refer to health insurance policies that cover an inordinate number of unnecessary treatments and procedures. Sen. Charles Grassley (R-IA), ranking minority member of the Senate Finance Committee and the Republican most closely working with the Democratic majority to pass President Obama’s health overhaul, said negotiators are “taking an intense look at” the proposal as a way of raising revenues to offset the $1 trillion the Finance overhaul bill is expected to cost.

Senator Olympia Snowe (R-ME), also a Finance Committee member, called the idea a “practical option” for “creating disincentives for the most expensive [health insurance] policies,” and Sen. John Kerry (D-MA) said his proposal to tie the maximum permitted coverage to the average level of benefits provided federal employees, and to tax the health insurance of those whose policies cost or cover more, is “gaining support” in the Senate.

This is being shopped to the public as just another tax on the super-wealthy, with Obama administration officials pointing to the “$40,000-a-year health insurance policies” carried by a handful of top Wall Street executives as examples of such unnecessarily luxurious coverage. However, a tax on “Cadillac” health insurance policies would end up disproportionately affecting middle- and lower-income Americans across the board, as well as the entire insured populations of several states.
The reason for this is the profusion of mandatory minimum coverages state governments require to be included in health insurance policies sold within their states’ borders. This results in residents being forced into uniformly high-priced, coverage-heavy “Cadillac” insurance policies as a result of state law, not their own choice.

Rhode Island leads the nation with 70 treatments and procedures that every policy sold there must cover, including asthma education and in vitro fertilization – one of the most expensive medical procedures health insurance can cover. While there is no doubt these coverages are both useful to and desired by some consumers, all insured residents of the Ocean State are forced to pay for asthma ed and IVF insurance, even if they aren’t potential consumers of either. Rhode Islanders’ premiums are is also higher than they otherwise would be because every policy sold there is required by law to cover the cost of smoking cessation, hair prosthesis, and acupuncture – along with 65 other treatments, procedures, and conditions.

States with fewer mandates than Rhode Island are hardly more consumer-friendly. Minnesota, for example, has coverage for birthmark removal, chiropractics, visits to a registered dietician, and visits from a social worker among its 68 mandates. Arkansas’ 43 mandates include requiring insurance to cover the costs of hiring a personal trainer and a drug abuse counselor; New Mexico’s 57 include circumcision, contraceptives, and “Oriental medicine” – a category that includes such “nontraditional” remedies to medical conditions as acupuncture, holistic medicine, and visits to the neighborhood herbalist.

In these and other states whose governments have responded to the influential clamor of special interest groups by packing health insurance plans to the gills with mandated coverages, consumers are left without a lower-cost, lower-coverage insurance option – meaning every citizen who chooses to carry health insurance is forced into a “Cadillac” coverage plan.

This is reinforced by the fact that all fifty states have laws in place prohibiting residents who may want less “gold-plated” coverage at less cost from purchasing insurance in another state. Allowing more personalized insurance policies to be sold within their borders, or transported across state lines, would be a major step toward decreasing both the cost of insurance and the number of individuals who lack coverage, millions of whom are currently uninsured by choice.

The prohibition against the interstate purchase of health insurance, which Rep. John Shadegg (R-AZ) has sought every Congress this decade to have repealed, allows governments to artificially raise the price of their citizens’ coverage by packing policies with all sorts of unwanted mandates without having to worry about competition – and it leaves every resident of affected states open to a federal tax on their involuntarily “Cadillac”-level insurance coverage.

Further, with a blanket requirement that all Americans carry health insurance looming, demand for the increasingly expensive product is poised to become even less elastic than it is now – meaning that states will be free to load policies up with even more mandates, causing the price of coverage to spike and forcing millions of Americans to enroll in a subsidized, government-run “public option” by virtue of having been priced out of the individual private market.

Onerous coverage mandates increase the cost of health insurance and force middle- and lower-income Americans to make an all-or-nothing decision between purchasing outrageously expensive policies that provide coverages they will never need and dropping their health insurance altogether. Imposing a tax increase on these Americans would not only violate one of President Obama’s most oft-repeated campaign promises (not to raise taxes on any American making less than $250,000 a year), but it would add insult to insult by penalizing those who already pay exorbitant insurance premiums for the actions of their state governments.