‘Cadillac’ tax could cost districts
A provision of the Affordable Care Act that doesn’t go into effect until 2018 will likely affect contract negotiations for school districts and employees starting next year.
The “Cadillac tax” charges an excise fee on high-dollar health insurance plans whose annual costs exceed $10,200 for individuals and $27,500 for families. That could add $100,000 to more than half a million dollars to some local districts’ expenses in the first year of the tax alone.
Over a five-year period, Marietta City Schools would have to pay nearly $5 million in excise tax on just one of its three insurance plans, based on current rates and projected increases, Treasurer Matt Reed said.
“We have had discussions within our insurance committee about the need to make some types of adjustments because obviously we, nor I’m sure any district, (cannot) afford to pay out those types of dollars without affecting the education of our students,” he said.
Reed said the district expects to begin negotiations with its teacher and staff unions early in 2014.
Marietta’s not alone. Schwendeman Agency Inc. in Marietta represents 29 school districts in eastern and southeast Ohio, and company President Mark Schwendeman said most will feel the impact sooner rather than later.
“Every district we have at some point hits the Cadillac tax. I would say 80 percent hit it in the first year,” he said.
With some exceptions, the tax is triggered when premiums on a plan exceed $10,200 a year for individual coverage and $27,500 annually for family coverage. The tax amount is 40 percent of the difference by which the premium exceeds the threshold.
According to a policy brief by the journal Health Affairs, the goal of the tax is to help finance the expansion of health care coverage under the Affordable Care Act. Another goal is that coverage would be reduced as employers try to avoid the tax, thus lowering overall health care costs.
According to the brief, so-called “Cadillac” plans tend to have higher premiums, often paid mostly by employers, and more generous benefits. Critics say low co-pays and deductibles, if any, “tend to shield workers from the true cost of care, ultimately driving up medical costs for everyone else,” the brief says.
The brief goes on to note, though, that other factors that go into the high cost of some plans include health status, age and work industry. Some adjustments were made to account for these variations, it says.
While it has yet to be determined how districts would deal with the Cadillac tax fees, Schwendeman said the most likely approach would be to have employees pay the same share of that as they do their premium.
There are only two ways for districts to avoid the Cadillac tax, Schwendeman said – focus on wellness in order to reduce claims and keep prices from rising or reduce the coverage offered.
J.D. Benson, president of the Marietta Education Association, which represents the district’s teachers, knows the Cadillac tax will be a factor when the union enters negotiations next year.
“I want to try to keep things as good as we can for our members,” he said. “At the same time, we have to realize the cost that is being given to the district.”
Benson noted the teachers’ union has agreed to forego overall pay increases the last six years to keep its health coverage in place at current levels. Board Vice President Wendy Myers, in a recent interview, acknowledged this but said she was concerned that the Cadillac tax could force the district into a situation where its employees are paying more for less coverage.
“Even when our teachers weren’t getting raises, they knew they had a great health plan,” she said.
In addition to Marietta, the Belpre, Fort Frye and Warren school districts have negotiations for new contracts coming up in 2014. Frontier is in negotiations now with the Frontier Local Education Association and its Ohio Association of Public School Employees, with its contracts having run out on July 31. Wolf Creek Local has contracts in place through 2015.
Based on estimates of an 8 percent increase in premiums each year, under current plans, the Warren Local school district is anticipating a Cadillac tax of $500,000 to $800,000 a year, while Fort Frye Local is expecting up to $100,000, said Melcie Wells, currently serving as treasurer of both districts.
The Belpre City school district is not expected to reach the Cadillac tax thresholds until fiscal year 2021, so the costs were not included in its most recent five-year forecast, interim Treasurer Janine Satterfield said.
Frontier Local Treasurer Frank Antill said it doesn’t look like that district is in immediate danger of running up against the tax benchmarks. The annual premium for family insurance is $15,000.
“Insurance would … have to jump pretty good to get us up to that threshold” by 2018, he said.
But Antill said the district will continue to monitor where it stands in relation to the tax.
“Insurance is expensive enough, let alone have to pay a premium on top of that,” he said.
Wolf Creek Local Schools is still looking at the potential effects of the tax, Treasurer Rachel Miller said.
Schwendeman said his company used premium increases of 8 percent a year to forecast the effects of the Cadillac tax for districts it serves, but he noted increases of 10 and 12 percent have not been uncommon in recent years. The tax thresholds do increase as time goes on, he said, but they are linked to the Consumer Price Index, which rises at a lower rate.
“If (the) health care inflation trend is running 8, 10, 12 percent, and the Consumer Price Index is running 2 to 3 percent, then the obvious is, that gap widens,” Schwendeman said.