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Christie Cites ‘Cadillac Tax’ In Push To Cut Public Employee Benefits

Governor: Obamacare tax would cost New Jersey $261 million in 2018 and $837 million by 2022 if health insurance costs aren’t cut

Credit: Governor's Office/Tim Larsen

In the latest body-blow to the state’s long-term fiscal health, Gov. Chris Christie is warning that New Jersey taxpayers will have to pay a $261 million “Cadillac tax” under Obamacare on public employee health benefits starting in 2018. And that federal health benefits tax will grow to $837 million four years later.

Tucked into President Obama’s Affordable Care Act as a cost-containment measure, the 2010 federal law gave public and private employers eight years of advance warning that the federal government would levy a 40 percent tax on the “excess amount” by which individual health insurance policies exceeded $10,200 and family plans cost more than $27,500 beginning in 2018.

Union and academic experts say Christie’s warnings are speculative and premature, given past delays and changes in the implementation of the Affordable Care Act, and they contend that Christie should follow the lead of states like California and Massachusetts that are pushing their insurance providers to hold down premium costs, instead of seeking to cut benefits.

But if the Obamacare tax goes into effect as scheduled, it would add to New Jersey’s long-term fiscal crisis, which has been caused by sluggish economic growth, mounting debt, and huge unfunded liabilities for pensions and retiree healthcare. Furthermore, the “Cadillac tax” would hit school districts, municipalities, and counties harder than state government, adding to the state’s highest-in-the-nation property tax burden.

“Potentially, it’s a big problem, but very few people are aware of it,” said Lou Neely, chief financial officer in East Brunswick. “If you ask most mayors and human resource people today what they think about the Cadillac tax, they probably think you’re talking about a car.”

Christie’s on a public campaign to change that. For the governor, invoking the threat of the looming Cadillac tax is a centerpiece of the “No Pain, No Gain” roadshow he will take to Belmar today as part of a summer-long campaign to build public support for his forthcoming plan to cut public-employee pension and retiree health-benefit costs.

Christie asserted at a town hall meeting on Long Beach Island last week that the State of New Jersey pays $8,000 more for health insurance premiums for its workers than the average private employer in the state, and dismissed public employees and their unions as “special interests” who “don’t care what happens to anybody else” as long as they keep their “excessive” benefits.

“The president of the United States has said the health plan we give employees of the State of New Jersey is a Cadillac plan,” Christie declared. “It’s not the Republican governor of New Jersey saying it. It’s the Democratic president of the United States.”

The family health insurance and prescription drug plans in which most state employees are enrolled will be close to the $27,500 tax threshold by 2015 and will exceed it the following year based on current health inflation rates. Health and prescription coverage for most retirees who do not yet qualify for Medicare will top $30,000 next year, according to Aon Hewitt, the state’s health benefits consultant.

Christie made it sound like the $261 million in 2018 and the $837 million in 2022 would have to come out of the state budget, which has been plagued by a series of revenue shortfalls over the past three years, most recently a surprise deficit that emerged in April and forced Christie to cut $2.4 billion in promised pension payments. While a state judge upheld Christie’s $900 million pension payment cut for Fiscal Year 2014, the unions filed an updated lawsuit yesterday challenging the $1.5 billion FY15 cut.

The governor’s office and the Treasury Department failed to respond to repeated requests for an explanation of Christie’s numbers. But a New Jersey Spotlight analysis of projections issued this month by Aon Hewitt in its 2015 rate recommendations for the State Health Benefits Plan showed that school districts, municipalities, and counties would pay the lion’s share of the Cadillac tax.

Aon Hewitt projects that counties and municipalities enrolled in the State Health Benefits Plan, would pay a $97 million Obamacare tax on their 47,757 active employees and 27,590 retirees in 2018 -- a tax that Christie projects would grow to $312.7 million by 2022. School districts covered by the state plan would pay an estimated $80 million for the 96,697 current teachers in the plan in 2018 and $258 million by 2022 (these projections assume that two-thirds of Aon Hewitt’s projected tax for school employees in the State Health Benefits Plan would be levied on the policies of current teachers).

School districts and local governments offer more expensive plans than the state government. As a result, combined health insurance and prescription drug coverage in 2015 will already exceed $27,500 for most county, municipal, and school employees, with the cost of coverage for retirees who have not yet qualified for Medicare topping $36,500 under the most expensive plan. Most individual plans also will be above or close to the $10,200 cap that triggers the tax by next year.

When counties, municipalities, and school districts enrolled in private insurance plans -- which are often more expensive -- are included, those projections of $177 million in excise health insurance taxes falling on the backs of local property taxpayers in 2018 and $570 million in 2022 numbers could very well double.

The state government would pay a $43 million Cadillac tax for 96,560 state workers and 46,837state retirees in 2018, which Christie expects to rise to $130.5 million by 2022. The state, which also pays for the health benefits of 97,551 retired teachers, also would incur an estimated $40 million tax in 2018 and $129 million by 2022 for those retired educators who do not yet qualify for Medicare. (Medicare policies fall well below the Obamacare tax threshold.)

Union leaders say Christie’s dire warning is just the latest attack in a five-year campaign to demonize “greedy” government workers that he hopes will carry him into the White House in 2016. It is also yet another headache for union officials to deal with as they try to defend existing benefits in contract negotiations with Christie, mayors, school boards and county freeholders next year.

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