Employers shifting costs to avoid Obamacare ‘Cadillac tax’
BY FRANCINE KNOWLES Staff Reporter September 20, 2013 6:54PM
Updated: October 23, 2013 6:34AM
Employers at risk of being hit with the “Cadillac tax” provision in the Affordable Care Act are shifting more costs to workers and incentivizing healthier employee lifestyles to avoid the tax, experts say.
Meanwhile unions charge the tax will hollow out benefits for workers.
The tax targets high-cost, richer benefit health insurance plans — so-called Cadillac plans that often have wider provider networks and menus of covered services and lower copays and deductibles.
Under the law, plans that cost more than $10,200 for individuals and more than $27,500 for families will face a 40 percent tax on the amount over the threshold.
Although the tax doesn’t start until 2018, employers are now “passing the cost onto employees in higher premiums and more cost sharing or requiring higher deductibles and copays” and scaling back offerings, said health policy consultant Julie Piotrowski.
“It’s a big deal,” said Hank Bereman, Towers Watson senior consultant in Chicago. “Employers need to start acting now to eliminate or reduce their exposure.”
Employers are offering financial incentives to encourage employee participation in smoking cessation and weight management programs and other healthier lifestyle initiatives to reduce costs in response to the tax, he said. Those incentives include paying more into employees’ Health Savings Accounts, Bereman said, adding, for employees that don’t participate, “they won’t get those extra dollars, and in some cases, they’re going to pay higher premiums.”
The actions continue a trend that has “become more pronounced,” Bereman said.
The tax seeks to slow the growth rate of health costs and finance health coverage expansion.
Proponents say high-cost plans are bloated, shield workers from the true cost of care and encourage unnecessary tests and hospital visits.
Labor unions, which are pushing to have the tax eliminated or the threshold raised, fear workers will unfairly feel the brunt of the tax and take issue with the “Cadillac” reference.
“It’s extremely misleading,” said Anders Lindall, AFSCME Council 31 spokesman in Chicago. “Far from being excessive, our plans are reliable, strong and safe.
“The tax punishes workers who have made sacrifices in pay to trade off for health security for their families. We shouldn’t impose a negative incentive against strong health plans.”
“Proponents assert people are overinsured, and that to control health spending the thing to do is increase peoples’ deductibles and copays, and that will get people to tell their doctors they don’t need as much health care,” said Tom Leibfried, national AFL-CIO legislative representative. “But there’s not a lot of evidence that increasing what people pay out of pocket slows health spending.”
Data from the Kaiser Family Foundation shows average annual premiums for single coverage rose 39 percent from 2006 to 2013 to $5,884 as the average annual deductible for single coverage spiked 78 percent to $884. For family coverage, premiums rose 42 percent to $16,351.
Health care premiums can be high for reasons other than a plan’s value, including the health status, age and gender of the workforce covered by the plan and the industries and regions of the country where workers are employed, said Leibfried.
To avoid the tax some employers are looking to give employees a set amount of money and send them to the new health care exchanges to shop for coverage, Piotrowski said.
On Wednesday, Walgreen Co. announced it will send employees to a private exchange, saying the change gives employees more choice and an opportunity to lower their costs. The tax did not factor into the company’s decision, said spokesman Michael Polzin, who added it’s premature to know what the impact of the tax will be since regulations around the tax have not yet been written.
But Boeing Co. is concerned and said the tax, “could add costs for our employees and retirees and raises the possibility of benefit reductions.”
AFSCME, which recently settled a contract covering 40,000 state of Illinois employees, doesn’t expect its members to be immediately affected by the tax when it kicks in, but going forward Lindall noted, “it’s a worrisome prospect on the horizon given health cost inflation.”