[P]ublic sector employers and unions are huddling with the Shumlin administration to discuss the future of health benefits once the Affordable Care Act’s excise tax on generous health plans takes effect in 2018. The teachers and state employees unions have met with the governor’s office to discuss the issue.
There’s a great deal of uncertainty at this point. The federal regulations are still being written, there are efforts to repeal the excise tax in Congress and a litany of options to adjust benefits and avoid the tax altogether. But one thing is certain: The public sector wants us to stop calling it the “Cadillac tax.”
“It’s got nothing to do with a Cadillac,” said Joel Cook, executive director of the Vermont NEA. “It’s got to do with the health benefits being received by 65 percent of the population. I don’t think 65 percent of cars on the road are Cadillacs.”
The ACA’s excise tax will be felt beyond the public sector as it will be assessed on any health plan with benefits that exceed a certain threshold. The idea is that when people have generous health benefits, they overuse medical services because they aren’t paying for them directly. That, in theory, drives up the cost of health plans and increases overall health care spending.
Close to half of large employers in the U.S. will be subject to the tax in 2018 and, by 2023, 82 percent of all health plans, public and private, will be hit by the tax, according to a consultant’s analysis cited in a state report.
If health plans in Vermont don’t change, the state’s total tax liability will be an estimated $9 million in 2018 and is expected to grow to $40 million by 2023. The course charted by unions and the administration will be important as roughly one-sixth of the population is covered by a public sector health plan.
Legislation passed this session requires the Shumlin administration to report on ways the public sector can avoid or reduce its tax liability, including a shared health plan that would pool risk across the public sector. That task has fallen to Michael Costa, deputy director of Health Care Reform and a veteran of the Tax Department.
“We’re looking to cover the waterfront” with the report, which is due Nov. 1, Costa said Tuesday. As part of his work, Costa has convened a stakeholder group representing public sector employers and unions to help prepare them for what may come and also to gain their input.
The group met last week to bring everyone up to speed. In addition to previewing potential options to avoid the tax, they discussed the uncertainty surrounding its implementation. The IRS has published bulletins responding to questions from tax attorneys, but has not begun its formal rule-making process, Costa said.
Efforts in Congress to repeal the tax — and other portions of the health care law — are winding through Washington. Rep. Peter Welch, D-Vt., is a co-sponsor of legislation that would repeal the excise tax, a position popular with labor groups that want to retain collectively bargained health benefits.
However, the operating assumption has to be that the tax will take effect in 2018, Costa and other stakeholders said.
A shared risk pool could lower administrative costs, allow for group purchasing and increase the resulting health plans’ bargaining clout. But there are other options as well. Public sector health plans could adjust their design to lower premiums — which is the basis for calculating the tax — by increasing out-of-pocket costs.
The overall value of a plan could be reduced but paired with tax deductible contributions to a health savings account that could help employees prepare for medical expenses, or what a plan covers could be pared back.
Costa’s report won’t examine how changes to health benefits will impact overall compensation packages, something of particular concern to the unions. That’s a matter to be dealt with through collective bargaining, he said.
The Vermont State Employees Association is preparing to negotiate a new contract that will carry into 2018 and the implementation of the tax. Steve Howard, VSEA executive director, said the excise tax — and how to avoid it — is going to be a major factor in negotiations with the state in the fall.
“Our members believe health care is something that should be bargained,” he said, and currently the health benefits are a mandatory subject for bargaining under the State Employees Labor Relations Act, he said.
Though he’s received no indication that there will be, the VSEA is bracing for a push to change the law. An elected official’s support for keeping health care as a mandatory bargaining topic will be a “litmus test” for VSEA support in 2016, Howard said.
Premiums for the VSEA health plan are set to increase 18 percent this year, but Howard said that’s not because state employees are overusing their benefits. Instead, he said the hike is necessitated by premium holidays that should not have been allowed, plus several hundred high cost claims in the past year.
If the value of state employee health benefits needs to be reduced to duck the tax, Howard wants to be sure state employees receive a commensurate boost in pay or other benefits, he added.
Municipalities, public schools and state troopers will also need to address how their benefits will shift under the new excise tax.
“We believe tackling this problem as a system is critical, because each individual school district can’t figure out all the complexity,” said Steve Dale, executive director of the Vermont School Board Association.
Public school employees’ health plans are managed by the Vermont Education Health Initiative, which is looking at how its plans can be redesigned to avoid or reduce its excise tax burden. VEHI’s most popular plan will otherwise cross the liability threshold in 2019.
Nicole Mace, an attorney for the school boards group, said their advice to individual districts is not to enter contracts that reach beyond 2017.
“They’re going to need to be prepared to bargain in this new reality,” she said, which includes the likelihood that health benefits offered by VEHI won’t be as generous as they are currently.
That’s also why it’s important that policymakers and stakeholders across the public sector get on the same page quickly, she said.
