By Kate Taylor
The New York Times, August 4, 2013
Cities and towns across the country are pushing municipal unions to accept cheaper health benefits in anticipation of a component of the Affordable Care Act that will tax expensive plans starting in 2018.
The so-called Cadillac tax was inserted into the Affordable Care Act at the advice of economists who argued that expensive health insurance with the employee bearing little cost made people insensitive to the cost of care. In public employment, though, where benefits are arrived at through bargaining with powerful unions, switching to cheaper plans will not be easy.
Steven Kreisberg, the director of collective bargaining and health care policy at the American Federation of State, County, and Municipal Employees, said the term Cadillac tax was misleading, because it “connotes a certain aspect of luxury in these health plans that is just factually incorrect.”
Cities including New York and Boston, and school districts from Westchester County, N.Y., to Orange County, Calif., are warning unions that if they cannot figure out how to rein in health care costs now, the price when the tax goes into effect will be steep, threatening raises and even jobs.
“I think it was misguided all along,” Robert B. Reich, the former labor secretary, said in an e-mail. When the law was being written, he said, he worried that the tax was “a blunt instrument that could too easily become a bargaining chit for cutting back benefits of workers.”
“Apparently, that’s what it’s become,” Mr. Reich, who is a professor of public policy at the University of California, Berkeley, said.
Under the tax, plans that cost above a certain threshold in 2018 — $10,200 annually for individual plans and $27,500 for family plans, with slightly higher cutoffs for retirees and those in high-risk professions like law enforcement — will be taxed at 40 percent of their costs in excess of the limit. (The thresholds will rise with inflation after 2018.)
State and local governments across the country tend to offer more expensive health plans than private businesses do, and workers often accept smaller wage increases to retain their benefits. Because of this, state and local government employees are expected to be disproportionately represented among those whose plans will be subject to the tax.
So the administration of Mayor Michael R. Bloomberg, in its final months in office, is asking municipal unions to agree to seek new bids for the city’s health insurance business, hoping to lower premiums. But lower-cost plans are likely to involve greater out-of-pocket costs and more limited networks of doctors, and so far, the response from labor has been cool.
Jonathan Gruber, an economist at the Massachusetts Institute of Technology who was a paid consultant to the Obama administration on health care policy, said forcing state and local governments to rein in health care costs was exactly what the tax was intended to do.
http://www.nytimes.com/2013/08/05/nyregion/health-care-law-raises-pressure-on-public-employees-unions.html?nl=todaysheadlines&emc=edit_th_20130805&_r=0&pagewanted=all
Obama demands tax on Cadillac plans
Comment by Don McCanne
Quote of the Day, January 7, 2010
What is the deal on the excise tax on high-premium “Cadillac” health plans, and why is President Obama pushing this tax so vigorously in the final stages of enacting health care reform?
Well, he is pushing it because his advisers tell him that it would help to achieve his first and foremost goal of slowing the increase in health care spending. The rhetoric being used implies that taxing high-premium plans would reduce the waste of paying for extravagant, non-essential benefits that are of little practical value. We’ll first dismiss this misperception and then follow with an explanation of why this form of cost management results in detrimental health outcomes.
The so-called Cadillac plans are merely plans with high premiums. The Health Affairs article by Jon Gabel and his colleagues (at link below) demonstrates that only 3.7 percent in the variation in premiums can be explained by the actuarial value inherent in the benefit design. In most instances, the higher premiums are not due to “Cadillac” benefits, but they are due to other factors, such as the type of industry providing the employment and the medical costs in the region.
Employers will not want to pay the excise tax, so they will demand from the insurers premiums that are at or below the tax threshold. Insurers will not simply reduce the premiums and continue to offer the same benefit packages. They will lower their benefits, lowering the actuarial value of the plans. There is absolutely no doubt that high and ever-increasing deductibles will be the norm.
The philosophy of controlling health care spending by shifting the financial burden to individuals and families is the most serious defect in the legislation before Congress. The excise tax on high-premium plans is only an example of this shift. The most glaring example is that the national standard proposed for basic plans has an actuarial value set at the unacceptably low level of 70 percent or even less. Making insured individuals pay money they don’t have to access care that is unaffordable is the worst way to control health care spending.
https://pnhp.org/news/2010/january/obama-demands-tax-on-cadillac-plans
Comment:
By Don McCanne, M.D.
Many of the health policies in Obamacare are not only highly flawed, they were known to be so as the Act was being crafted. The tax on Cadillac plans – standard full benefit plans that are expensive only because health care is expensive – is one of these we-told-you-so, seriously flawed policies.
Unions representing public employees have been more successful in maintaining the actuarial value of their plans, that is, ensuring that the plans will prevent financial hardship for those who need health care. Now Obamacare has provided local governments with a tool – the Cadillac tax – to bring employees’ health plans into compliance with high-deductible, low actuarial value underinsurance plans that have become the norm in the individual insurance market and are becoming more prevalent in the workplace. It is well established that these plans cause worse health outcomes and greater financial hardship.
It is complete nonsense to take good plans and wreck them so that they’ll all be equally bad, when what we need to do is to provide everyone with protection against financial hardship when accessing essential health care services. This is precisely what the health policies of the single payer model are designed to do. Let’s get our policies right.