By Cathy Miller, Business Writer
While representatives from the House and Senate work on merging their two health care reform bills, one major sticking point is the Senate’s proposed tax on “Cadillac” health plans. Supporters view the proposed tax as vital to controlling health care costs. Opponents include House members that proposed an income tax on high earners as an alternative for paying for health care reform. The strong opposition of labor unions is behind a scheduled meeting this week between the President and union leaders who oppose the tax.
What Makes a Cadillac
Health plans with high premiums are what create a Cadillac health plan. Specifically, the senate bill defines the high-premium plans as those with a total cost of $8,500 or more for individuals and $23,000 or more for a family. Included are total premium costs for health and dental benefits and total contributions (employer and employee) to flexible spending accounts (FSAs) or health saving accounts (HSAs). The bill proposes a 40% excise tax on the amount over those individual or family costs.
Typically, plans with high premiums have lower deductibles, lower copayments and higher benefit levels; thus, the name “Cadillac.” Opponents of the bill argue, however, that there are other reasons for higher premiums, such as the demographics in a group plan. Groups with older employees or employees with ongoing health issues generally have higher premiums.
Unions Assemble Opposition
According to the October 2009 Notes issue of Employee Benefit Research Institute (EBRI), union workers are much more likely to have employer-sponsored benefits (83%) than non-union members (58%). Union leaders see a threat to their long-fought battle for better benefits that they say were in lieu of higher wages. They contend the tax will not hurt the intended target of high-paid executives as much as it will older workers and employees of small companies. Since health care costs outpace inflation, opponents of the excise tax warn of an increasing number of employer-sponsored plans qualifying as Cadillac health plans.
Early reports indicate resistance from the administration to back off on the excise tax. Union representatives hope for a compromise with, at a minimum, a higher limit for qualification as a Cadillac health plan.
Employers Bracing for Change
Although the excise tax is on insurers, at least some of the costs are likely to be passed on to the employer. Other employers self-insure their health plans in which an excise tax would directly impact the employer.
According to a recent Mercer analysis of 3,000 employers, up to 19% of the health plans would qualify as a Cadillac health plan when the tax goes into effect in 2013. Employers predict future changes to their health plans to avoid the tax. Possible fallout includes the elimination of contributions to FSAs, HSAs or termination of dental plans.
In addition to employers and union members, insurers and agents watch not only the President’s meeting on this issue but the entire health care debate. It is far from being over.