Obamacare's 'Cadillac tax' expected to push more costs onto workers
Employers are pushing more of the cost of health insurance onto their workers, a trend that is expected to accelerate in coming years as companies try to avoid a tax generated by the Affordable Care Act, an annual survey of health benefits found.
The so-called Cadillac tax, a 40 percent levy set to hit high-cost health plans in 2018, is causing some large companies to reduce their benefit costs, according to the survey by the Kaiser Family Foundation, a nonprofit health policy research organization based in Menlo Park, Calif.
One of the main ways firms can avoid being subject to the tax is by raising deductibles, which is the amount of money an employee must pay before benefits kick in, said Gary Claxton, a vice president at the foundation.
“Our survey finds most large employers are already planning for the Cadillac tax, with some already taking steps to minimize its impact in 2018,” Claxton said. “Those changes likely will shift costs to workers, but exactly how and how much will vary for individual workers.”
The Cadillac tax was formed under President Obama's signature health law to penalize companies for health plans with rich benefits on the theory that the coverage helps to drive up overall costs of medical insurance. The tax is paid on premiums above $10,200 for a single employee and $27,500 for family coverage. But rising costs are hitting many health plans, resulting in higher premiums and increasing the chance that even plans with average benefits could be subject to the tax.
“The Cadillac tax is something of a misnomer,” said Norm Kerr, a health care consultant with Downtown benefits firm Buck Consultants.
“It's not the richness of the benefits; it's the demographics of the population,” he said. “An employer with an older and less healthy workforce, their costs are going to be a lot more.”
Kaiser found that 53 percent of large employers — those with 200 or more workers — analyzed their health plans to determine whether they would exceed the Cadillac tax thresholds. Nearly one in five, or 19 percent, of those analyzing their plans said they will exceed the thresholds. And 13 percent of the firms said they have made changes to their plans to avoid the tax.
Kerr said he's running projections for all his clients.
“I have an employer I work with, and they have an older workforce. They're likely to hit the tax,” he said. “We're going to cut the benefits back.”
In a separate study last month, Kaiser Family Foundation found that just more than a quarter of employers that offer health plans would pay the tax in 2018 on at least one plan if they do not make changes. And the National Business Group on Health, a nonprofit association of large employers, found that half of its members reported at least one of their health plans would trigger the tax. Both groups predicted that the proportion of employers affected would go up significantly over time.
Worries about the tax are part of contract negotiations between the United Steelworkers union and several steel producers, which have sought to shift costs by raising deductibles, among other changes, to reduce insurance costs. Allegheny Technologies Inc., for example, has proposed a clause in its union contract that would allow it to reopen bargaining if the Cadillac tax were to hit its employee health plans.
“The parties agree that such reopening and negotiation shall result in design changes required in order for the company to avoid assessment of any such tax or fee,” according to ATI's “last, best and final” proposal.
ATI spokesman Dan Greenfield and USW officials declined to comment.
Other large employers, labor unions and health insurers are among members of the Alliance to Fight the 40, which is lobbying for repeal of the Cadillac tax.
“The benefits planning process occurs years in advance and the burden of the cost-sharing adjustments that employers are making this year and next will fall hardest on those least able to afford it — lower-income workers, sicker workers and older workers,” the alliance said in a statement.
The Kaiser survey found that eight in 10 workers who received coverage from their job this year were subject to a deductible that averaged $1,318, up 8 percent from last year. Deductibles are rising faster than premiums, which grew 4 percent to an average of $17,545 for family coverage, Kaiser found
“The pushback from the tax will cause eventually is more cost-sharing,” Claxton said. “There's not a lot of reason to think that the trends we have seen on that will moderate.”
The average deductible for workers with single coverage totaled $1,077 this year, compared with $303 in 2006. That deductible has climbed nearly seven times faster than wages, on average, during the past five years.
“That has an impact on family budgets,” Kaiser CEO Drew Altman said.
Emmett Krall, of Paducah, Ky., said the annual deductible of $3,500 on his employer-sponsored health insurance makes him think about cost more than he wants to, especially because his 10-year-old son was diagnosed with Type 1 diabetes last year.
Krall said he has to come up with about $200 a month to cover his son's insulin, needles and pump. The 46-year-old carpet manufacturer sales representative said he has cut down on eating out, and he's watching where he spends his money.
“It causes an anxiety and a stress on my part, because I do get stressed about it, and I don't want him to know about it,” he said.
Employer-sponsored health insurance is the most common form of coverage in the United States, with about 147 million people enrolled.
Companies of all sizes offer coverage.
The survey, which Kaiser conducts with the Health Research & Educational Trust, included responses from 3,191 randomly selected, non-federal public and private firms across the nation.
Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or email@example.com. The Associated Press contributed.