'Cadillac' tax on health benefits adds hurdle to Pa. teacher contract talks
Many Pennsylvania public school districts renegotiating contracts are wary of getting stuck with hefty tax bills if they do not control health care spending.
In 2018, a 40 percent federal tax will hit insurance and related perks valued at more than $10,200 for singles and $27,500 for families.
The Affordable Care Act's so-called “Cadillac” tax is indexed to inflation, though studies show health-care costs are rising at a rate higher than that.
The Cadillac tax will affect all Americans, but it is becoming a concern for teachers unions and cash-strapped school districts facing difficult contract negotiations.
“The issue of this tax is there. Districts need to be aware of it. There will be a push for more employee contributions,” said Jeffery S. Ammerman, director of technical assistance for the Pennsylvania Association of School Business Officials.
Ammerman said his group does not have specific figures showing how many districts are asking for greater employee contributions, but he is confident there is a trend toward those who are.
“No one likes it. The Cadillac tax does not benefit the employer or employee. It's just money that goes straight to the federal government,” he said.
Who would pay the tax — the district or its employees — is unclear, officials with the Pennsylvania State Education Association said. It could be subject to negotiation in contract talks, they said.
Tom DeGeorge, a teacher who represents Butler Area School District's teachers, is going back and forth with administrators about health care costs. Butler Area's contract expires at the end of this month.
DeGeorge said he would like higher deductibles, premiums and co-pays to be phased in. Butler Area spends $19,543 a year for family coverage per employee, about $8,000 less than the Cadillac tax threshold.
The PSEA, the state's largest teachers union, has not opposed the tax, though its umbrella group, the National Education Association, has.
“It is too early to say what impact it will have,” said PSEA spokesman Wythe Keever. “We are concerned about anything that would make health care less accessible to our members.”
Typically, government employees have enjoyed more generous benefits than private-sector workers. Nationally, public-sector employees contributed an average of $3,088 for family coverage in 2012. Private-sector employees contributed an average of $4,236 for family coverage that year.
Jon Perry, director of financial services for Franklin Regional School District, where the teachers' contract expires in a year, said the Cadillac tax has come up there.
“No one wants to come up against this tax,” said Matt Edgell, a Pittsburgh-based spokesman for the PSEA, which represents more than 92 bargaining units in Allegheny County. Of those, 26 are negotiating contracts that have expired or will before the start of the school year.
Wayne Wismar, business manager in the Hempfield School District, likened the tax to a penalty tax. He said his district's costs to provide family coverage can run as high as $20,000 a year.
“It's almost a penalty tax for too rich a coverage,” Wismar said.
Long before the Affordable Care Act was enacted, public schools had plenty of incentive to control health care costs, said Jill Swaney, business manager at the Mars Area School District. School districts for years have known their required contributions to employee pensions will rise sharply.
Swaney said she is not worried about Mars exceeding the “Cadillac” limits, even when the district renegotiates a contract in two years. Mars pays about $17,000 a year to provide family coverage.
“Heath care is always an issue. The cost of it has been an issue for decades. We've gone from HMOs to PPOs to plans with high deductibles,” Swaney said.
Rick Wills is a staff writer for Trib Total Media.