Monday, August 5, 2013

Fwd: qotd: 'Cadillac tax' threatening public union health benefits

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-------- Original Message --------
Subject: qotd: 'Cadillac tax' threatening public union health benefits
Date: Mon, 5 Aug 2013 07:25:43 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

The New York Times
August 4, 2013
Health Care Law Raises Pressure on Public Unions
By Kate Taylor

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.

Quote of the Day
January 7, 2010
Obama demands tax on Cadillac plans
Comment by Don McCanne

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.

Comment: 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.

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