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Public Employees Asked to Accept Cheaper Health Benefits to Avoid High Tax

Health Reform & Cadillac Tax The pressure is on for municipal unions across the country to accept cheaper health benefits in order to avoid a provision of the Affordable Care Act (ACA) that will tax expensive health plans in 2018.

Government administrations warn 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.

The Cadillac Tax

Simply put, the so-called ‘Cadillac tax’ stipulation of the ACA penalizes companies that offer high-end health insurance plans to their employees. What exactly qualifies a plan as high-end?

Under the tax, plans that cost above a certain threshold in 2018 ($10,200 annually for individual plans and $27,500 for family plans) are deemed high-end. These plans will be taxed at 40 percent of their costs in excess of the limit. Cutoffs will be slightly higher for retirees and individuals in professions deemed ‘high-risk’ such as law enforcement. The thresholds will rise with inflation after 2018.

Government administrators in cities like New York are asking unions to entertain new health insurance bids in hopes of lowering premiums; however, lower-cost plans could mean sacrifices for employees such as greater out-of-pocket costs and limited doctor networks. Needless to say, negotiating with unions to accept cheaper plans is not an easy task. Many state and local government workers accept smaller wages in exchange for more expensive health plans with better benefits.

The Effects

Unless employers manage to significantly cut health care costs, says Bradley Herring, health economist at John Hopkins Bloomberg School of Public Health, as many as 75 percent of plans could be affected by the tax over the next decade.

Although the tax does not start until 2018, employers are preparing now by doing whatever they can to bring down the cost of their plans and meet the deadline.  In effort to avoid this expensive tax, we may notice a trend of companies scaling back on generous health benefits and focusing instead on lowering the overall cost of care.

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