Unions, employers struggle with ‘Cadillac’ health plan tax

A key selling point for unions, which are big Obama supporters, has been top-notch health benefits.


Some of the strongest supporters during President Barack Obama’s 2012 re-election campaign were union members. But as the Affordable Care Act takes effect, ironically, many union members could be hit with “Obamacare’s” toughest penalty.

A case in point is the International Brotherhood of Electrical Workers Local 728, whose 1,200 members lay wire and work construction in Palm Beach, Broward and eight other Florida counties.

The union is self-insured, and it offers what’s known as a “multi-employer plan,” said Local 728 business manager David Svetlick. Because of this, the union and its members are bearing the brunt of the health care law’s elimination of annual and life-time coverage caps, as well as a looming tax on so-called “Cadillac” health insurance plans.

Svetlick said his members this year lost $1 an hour of pay to absorb the cost of ending coverage caps. That means a journeyman electrician now earns $25 an hour instead of $26.

And in 2018, another hit is coming. Those aforementioned “Cadillac” plans will face an excise tax of a stiff 40 percent, to be paid by self-insured plans or insurers.

Svetlick said his individual policy-holders will hit the threshold. It equates to at least another $2.50 taken from those workers’ pay. He’s not sure yet what the local is going to do about it.

The impact of the tax is concerning to labor groups that have fought with employers for good benefits.

Nationally, unions have called on the Obama administration to step in, so far with only a little success. A rule issued Nov. 7 allows the type of plans Local 728 offers to be exempt for two years from another tax — a temporary $63-per-insured tax that covers the cost of a catastrophic reinsurance plan protecting insurers from excess losses during the health reform rollout.

Despite the burden on his members, Svetlick still counts himself a supporter of the health care law.

“We need national health care in this country, we truly do, and it’s a sin that people have no health care and can’t get medical service,” Svetlick said. “It’s just unfortunate that the cost is a big issue. It’s not that this country can’t have the best health care in the world, it’s just the profiteering that’s going on.”

The “Cadillac” tax was intended to help pay for tax credits for buyers of insurance on the exchanges. It also represented a bit of social engineering. People with high-cost, benefit-rich insurance plans usually have low or no copayments and deductibles. Lacking skin in the game, they overuse medical care, pushing up the cost of health care for everyone, studies suggest.

But the 2010 health care law’s definition of what constitutes a luxurious Cadillac plan isn’t all that high. It’s $10,200 per individual and $27,500 per family, with some adjustment for inflation. A new study by the Mercer consulting group found that the average price of all employer-provided health plans in Florida in 2013 was $10,067.

Towers Watson, a national human resources consultancy, estimates that 60 percent of all large-group employers’ health plans will hit the “Cadillac” plan threshold without changes.

To avoid the tax, large employers are beginning to take steps now, said Brad Helfand, a consultant with Illinois-based Sg2. Helfand said companies like Walgreens, Sears and Darden are among the first large employers offering insurance through what’s called a private health exchange. Many more will soon follow, he predicted.

With a private exchange, employers offer a voucher worth less than the “Cadillac” plan tax threshold. The employees then use that voucher to shop on their company’s private exchange, allowing them to select the plan with the premium and deductible split they prefer.

Darden spokesman Rich Jeffers said the Orlando-based owner of Olive Garden, Yard House and other chains went to private exchanges to add competition and choice to its offerings for 2013. He said the move has been a hit with the 50,000 salaried employees who qualify.

“They had the ability to choose from five different plans and had up to five carriers in some markets,” Jeffers said. “Some plans are high deductible with lower premium, some are lower premium with high deductible, depending on what’s best for the individual employee.”

Helfand predicts that consumers on private exchanges will do the same thing that consumers on the Obamacare marketplace are expected to do – move predominantly to plans with the lowest premiums. That means they’ll likely choose plans with higher out-of-pocket costs and narrower provider networks. This will lead them to use health care less, as the health law intended. Doctors and hospitals should plan accordingly, he said.

“We think consumers are going to start moving with their feet,” he said.

Svetlick, with the IBEW, noted that President Obama has fixed other problems with the law, delaying the employer mandate penalties a year and now allowing insurers to extend non-compliant policies. He’s hopeful the law can be tweaked to help his members with the Cadillac tax problem, too.

“The AFL-CIO, the International union presidents, everybody is asking the government to look at us and answer the questions that weren’t addressed,” he said.

“I honestly believe that the law has some growing pains, and over the next two to three years — I pray not more than five — we will work the bugs out of this system, and we will have the first-class health care system that a first-class nation deserves,” he added. “But because of the politics of the issue, getting there is extremely painful.”



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