The excise tax on high-premium health insurance policies that’s such a controversial part of the Senate health care bill was always intended to be more than just a revenue raiser. The proposal’s supporters have touted it as a step toward holding down costs by discouraging “overly generous” coverage.

The majority of so-called “Cadillac” health plans would indeed become noticeably less luxurious if the proposal makes it into law, according to research published Thursday by Mercer, a firm that provides consulting, outsourcing, and investment services.

The flat 40 percent tax, payable by the insurer, would apply to that part of the cost of a medical plan that exceeds a threshold of $8,500 for an individual employee or $23,000 for a family (including health, dental, and vision coverage, as well as certain contributions to various tax-advantaged savings accounts). Insurers would, of course, pass on the cost to their corporate customers, who would in turn shift the cost to … yes, you guessed it.

The majority of plan sponsors (63 percent) say that they would prune benefits to avoid the tax. Of that group, three-quarters would adopt the tried-and-true strategy of hiking deductibles or copayments to reduce premiums.

About one-quarter of the employers polled say that they would keep benefits intact but pass the cost of the tax directly to employees. Only 2 percent said they would keep the plan and absorb the additional cost themselves.

Mercer’s findings are in line with a Congressional Budget Office report this week which found that “individuals who kept their high-premium policies would pay a higher premium than under current law, with the difference in premiums roughly equal to the amount of the tax” (see the CBO director’s blog here). However, most people would switch to lower-premium plans “that either pay a smaller share of covered health care costs, … manage benefits more tightly, or cover fewer services.”

Whether it’s the result of plan sponsors’ choices or employees’ decisions, a lot of Cadillacs will be heading for the scrap heap if the health bill passes. ###