Lavish ‘Cadillac’ health plans dying out as PPACA tax looms

"Skin in the game" gets real... "Skin in the game" gets real...

(Bloomberg) -- Large employers are increasingly putting an end to their most generous health-care coverage as a tax on “Cadillac” insurance plans looms closer under the Patient Protection and Affordable Care Act (PPACA).

Employees including bankers at JPMorgan Chase & Co. and college professors at Harvard University are seeing a range of moves to shift more costs to workers. Companies are introducing higher deductibles and co-payments, rising premiums and the imposition of wellness programs that carry penalties for people who don’t comply.

Requiring employees to shoulder more of the cost burden may undermine public support for PPACA just as Congress, now firmly under Republican control, considers new ways to gut the law.

See also: Manufacturers to IRS: Interpret the PPACA Cadillac plan tax.

The tax takes effect in 2018, and employers are already laying the groundwork to make sure they don’t have to pay the 40 percent surcharge on health-insurance spending that exceeds $27,500 for a family or $10,200 for an individual. Once envisioned as a tool to slow the nation’s growing health-care tab, the tax has in practice meant higher out-of-pocket health-care costs for workers.

“I don’t think there’s any employer that’s planning on paying that tax,” Steve Wojcik, vice president of public policy for the National Business Group on Health (NBGH), which represents large employers, said in a phone interview.

“It doesn’t help the company, it doesn’t help the employees, it doesn’t help the shareholders,” he said. “It doesn’t really help anybody except the federal government.”

Slowing growth

The tax on Cadillac plans -- named after the luxury vehicle to denote their lavishness -- is one reason the growth in health-care premiums has slowed since PPACA took effect in 2010.

Last year, average family premiums rose 3 percent to $16,834, while single premiums held steady at $6,025, according to the Kaiser Family Foundation. Companies with a large percentage of high-wage workers paid more, with an average of $6,244 for single coverage.

See also: Employers expect 7% increase in benefit costs.

Among employers with 200 or more workers, 51 percent had employees paying one-quarter or more of their premiums for family coverage last year, according to Kaiser’s report in September. That portion has been gradually increasing since 2011, when it was 42 percent.

Employers who have traditionally offered generous benefits to lure top professional talent, or who have conceded to demands from labor unions for better health benefits, are most susceptible to the tax, Wojcik said. Many are responding by imposing new requirements on workers and reducing their health benefits.

The tax “is having the effect that was intended, which is the cost of these plans are being reduced,” Christopher Condeluci, a former Senate Republican aide who helped design it, said in a phone interview. “Sadly, the way in which they’re being reduced is they’re shifting more costs onto the employees.”

Biometric screening

JPMorgan expanded its wellness program for 2015, requiring workers to complete a biometric screening and an online questionnaire in exchange for $200 in a savings account for medical expenses. Employees who don’t comply will pay $500 extra for their insurance premiums.

The bank also raised its insurance premiums for workers and even more for their spouses, who “have higher claims, on average,” it said in an employee brochure.

JPMorgan employees pay about 25 percent of the cost of medical coverage, with the company covering the rest, according to enrollment materials. Higher-salaried workers pay more for coverage.

Andrew Gray, a spokesman for the bank, didn’t have an immediate comment.

George Washington University in Washington eliminated its most generous health plan this year because it would have been subject to the tax, the school told employees in a benefits guide.

Balance challenge

“Primarily as a result of this significant future tax liability, GW will no longer be offering this plan after 2014,” the university said. Employees can select from three health plans, including a new one that carries a deductible of at least $1,500, almost twice as much as the next-highest plan.

The high-deductible plan, which employees at the school can pair with a savings account for medical expenses, covers less of workers’ health costs -- 70 percent on average, compared with at least 79 percent for the other two plans.

High deductibles

“GW, like all employers, has the challenge of maintaining competitive benefits plans while balancing increases in the cost of medical care,” the university’s executive vice president and treasurer, Lou Katz, said in a September blog post. A spokeswoman, Maralee Csellar, didn’t immediately provide answers to e-mailed questions about the benefit changes.

The number of employers offering only a high-deductible plan was expected to increase by 50 percent for 2015, according to an August study from the National Business Group on Health. Thirty-two percent planned to offer such “consumer-directed health plans,” up from 22 percent in 2014.

Harvard is requiring employees to pay in-network deductibles for the first time this year, sharing in the cost of care, which will help the university reduce the premiums workers pay. That led to protests from faculty who called the change a pay cut.

Unclear role

The school has been scrutinizing employee benefits since at least 2012, when the college said the annual expense had doubled to $476 million over the previous 10 fiscal years. Harvard gives general guidelines on spending to the University Benefits Committee, a group of faculty and staff who advise the provost on health benefits.

It’s unclear how much of a role the Cadillac tax played in Harvard’s decision, said Michael Chernew, the chairman of the committee and a professor of health-care policy at Harvard Medical School in Boston. The tax’s debut in 2018 is still a long way away, and Harvard probably wouldn’t have been affected by it for the first few years, depending on how quickly health-care spending climbs, he said.

“There are people here who believe the Cadillac tax is really important. But it doesn’t come until 2018,” Chernew said. “My belief is that in 2018 we were not at substantial risk of bumping into the Cadillac tax substantially. As time goes on we were more and more likely to be affected.”

Repeal possible?

President Barack Obama, who signed PPACA, won’t be around to collect the Cadillac tax. It will be implemented and administered by his successor, and there is some hope among employers that the levy may yet be delayed or repealed, said Wojcik, of the large employers’ group.

One complication for repeal, though, is the cost. The Congressional Budget Office said in 2012 that repealing the tax would add $111 billion to the deficit by 2022, an amount that increases each year as health-care costs grow and the tax takes a bite from more employers.

“There’s a lot of time between now and then; we don’t know,” he said. “For most employers, they’re going with the assumption now that this is the law and in order to avoid this pretty drastic tax we need to take action now.”

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