High-value public employee health insurance plans will be subject to a 40 percent tax within the coming decade, leaving local and state officials unsure how this will affect their budgets.
The so-called Cadillac tax will trigger in 2018 on plans worth more than $10,200 (individuals) and $27,500 (families). The tariff was included in the 2010 Affordable Care Act as a way of slowing long-term increases in healthcare costs.
What has municipal officials concerned, however, is the impact the tax will have on their budgets. Some have raised the possibility that policyholders will pay a portion of the charge.
The impact of the Cadillac tax was raised yesterday during a panel discussion of how reforms in federal healthcare and state health benefits will affect municipalities. The panel was part of the New Jersey League of Municipalities’ annual conference in Atlantic City.
The Cadillac tax thresholds are scheduled to grow at the rate of inflation. Since the rise in health insurance costs typically outpaces inflation, it’s expected that more health plans will be affected by the tax over time.
In the case of New Jersey’s public employee insurance plans, most individual policies will be affected by the tax in 2018, with the remaining individual and family plans being taxed a few years after that, according to David Pointer, assistant director of the New Jersey Public Employees Health Benefits Program, which is part of the state Department of the Treasury.
Pointer said that the ACA has affected the state health plan since a few months of it being passed in March 2010. One of the earliest changes was increasing the age that public employees’ children could remain on their parents’ plans from 23 to 26. In addition, a rule that barred children from participating in the state plan if they were covered by their employers’ insurance was eliminated.
Branchburg Township Administrator Gregory Bonin noted the importance for local governments of tracking and reporting the number of hours that employees work.
Under the ACA, employers that offer insurance and have at least 50 workers must be prepared to insure any employee who clocks an average of 30 hours a week, starting in 2015. But the number of hours is only part of the picture. A formula is used to determine if an employer has the equivalent of 50 workers, over a three- or six-month period.
“It’s very important that you manage your staff” hours, Bonin told the crowd of roughly 125, heavily populated by municipal officials.
Bonin, the vice president of the New Jersey Municipal Management Association, added that Branchburg recently cut its part-time workers from 32 hours per week to 29 hours. For towns that hire recreational and maintenance workers in the summer, it can pay to base their calculations on an offseason time period, he said.
David Knowlton, president and CEO of the nonprofit New Jersey Health Care Quality Institute, said the national changes are positive and encouraged the local officials “to see this as an opportunity, not as a calamity.”
He said they could be a powerful voice in the design of health plans, adding that it’s important that the network of healthcare providers included in the plans is not too narrow.
Knowlton also said it was essential that officials be well informed about changes the ACA would impose, referring them to a new institute website.
Local officials raised a wide range of concerns about the ACA. Mount Laurel Fire Department Chief John Colucci expressed concern that the hours worked by volunteer firefighters will put his department over the 50-worker threshold for offering insurance. Oradell Councilwoman Donna Alonso noted that the ACA is leading to insurers cancelling health plans, part of her broader set of concerns about the “unintended consequences” of the ACA.
Regional U.S. Health and Human Services administrator Dr. Jaime Torres attempted to make the case for the law, noting that some employers had been cutting back on benefits before the legislation was enacted, while premiums were increasing.
He noted the large number of uninsured Americans and the soaring cost of healthcare prior to the ACA, as well as the frequent cases in which people went bankrupt despite having insurance because it covered so few of their medical bills.
“It’s not going to cure all of the healthcare ills of our nation, but it’s definitely a huge step forward. We know things have to be improved,” Torres said.
While acknowledging that healthcare.gov, the federal health insurance marketplace, has been “a nightmare in many places,” Torres said the number of residents applying for insurance is increasing, with many residents eligible for insurance for the first time in their lives.
Pointer noted that state health benefits reform is also having an impact on public employee health insurance costs. That reform, which increased employees’ contributions to their insurance, also opened up new options for employees that carry higher deductibles while offering lower employee contributions.
The high-deductible plans have drawn a small amount of interest, maybe “a couple hundred people,” Pointer said.
Another big change in the state plan is on the way with the introduction of a wellness program in January. Pointer said having workers improve their health through nutrition and exercise will be important “to help bend the cost curve,” a term for the effort to reduce annual increases in healthcare costs.