'Cadillac' Tax Could Diminish Union Health Plans

Originally posted by Bob Herman on March 3, 2015 on businessinsider.com.

Health plans obtained through union collective bargaining agreements often include much more generous benefits than other employer-sponsored plans. But such benefits are likely to be pared down as the Affordable Care Act's excise tax nears, a new study in Health Affairs contends.

That excise tax, often called the “Cadillac” tax, will go into effect Jan. 1, 2018. A 40% tax will be levied on every dollar of total premiums paid above $10,200 for individual health plans and $27,500 for family plans.

Policymakers included the Cadillac tax in the ACA as a way to raise revenue to fund the law. The Congressional Budget Office estimates it will bring in $120 billion between 2018 and 2024. Most of that will come from higher taxes on employees' taxable wages instead of the tax-exempt insurance benefits.

But the tax also was viewed as a way to reduce the number of health plans that have little cost-sharing and premium contributions, which some argue contribute to the overuse of healthcare. President Barack Obama has been quoted as saying the excise tax will discourage “these really fancy plans that end up driving up costs.” Lavish executive-level health plans and collegiate benefit packages, like Harvard University's, have been oft-cited targets. However, many collectively bargained policies fall into the Cadillac bracket as well.

The Health Affairs study, published Monday, sought specifics about what kind of health benefit packages unions provide for employees. People with union plans have lesser out-of-pocket obligations and don't pay as much per month toward their premium as others with employer-based insurance, but the surprise was “the magnitude of the differences for certain things,” said Jon Gabel, a healthcare fellow at NORC at the University of Chicago and one of the study's authors.

For instance, families in collectively bargained plans paid about $828 per year toward their premium, or about $69 per month, according to the study's surveyed data. That compared to $4,565 for the average employer-sponsored family plan, or about $380 per month, according to 2013 data from the Kaiser Family Foundation.

Cost-sharing requirements also were less onerous in union health plans, the study found. The average annual in-network deductible for an individual in a collectively bargained plan was $203. The average deductible at other employer-based plans was almost six times higher at $1,135.

Although the federal government is considering some flexibility for “high risk” unionized occupations such as miners and construction workers, many employers are looking to get ahead of the excise tax by slimming down benefits.

“For those who are fortunate to have a Cadillac plan right now, it's probably not going to be so comprehensive in the future,” Mr. Gabel said. However, he said, reduced benefits should lead to increased wages to offset higher cost-sharing.

Tom Leibfried, a health care lobbyist for the AFL-CIO, a federation of 56 unions, calls the Cadillac tax “a misnomer” because union plans apply to middle-class Americans with modest wages. The issue should not be about the generosity of health coverage, but rather whether the coverage is appropriate for people based on the health care costs in their geography, he said.

“Trying to control utilization in that way really does amount to a cost-shift,” Mr. Leibfried said. “This is really a middle-class problem.”

Higher compensation supplanting lost benefits is not a sure thing either, Mr. Leibfried said. Indeed, wages and salaries have been mostly stagnant the past decade, barely edging out inflation even as health benefits shrink.

Health Insurers Move Ahead, With or without Individual Mandate

For the health policy world, the Supreme Court's tough questioning of the individual mandate last week was a seismic event.

But in Hartford, Conn., the city sometimes called the epicenter of the insurance industry, David Cordani isn't quaking.

Cordani is the CEO of Cigna, the nation's fourth-largest health insurer. He says the insurance industry started changing itself before the Affordable Care Act became law in 2010. And the changes will continue regardless of what happens at the high court.

"The broader health care debate is way larger than the individual mandate," Cordani said during an interview in his sunny corner office, just a few hours after some of the justices seemed ready to strike down the mandate.

Cigna, like the broader insurance industry, hasn't taken a position on whether or not the mandate requiring Americans to buy health coverage is constitutional. Cordani points out that it really only deals with expanding care to people in the small-group and individual markets. That's a fraction of the total number of people insured, and it's not a major market for Cigna.

Cordani says the act does a fair enough job at expanding access to care, but it doesn't do as much to improve the quality of care and drive down costs. That's his focus: changing the way we think about insurance, from paying for "sick care" to paying for "health care," driving consumers to stay healthy and giving doctors incentives to keep them that way.

"What we've been doing is innovating programs around that, with or without the Affordable Care Act," Cordani says.

He says Cigna is still deciding how and where to sell insurance in the new exchanges – the health insurance marketplaces that will open for business in 2014. That's not exactly easy, according to Tom Wildsmith of the American Academy of Actuaries. Actuaries evaluate future risk, and Wildsmith says what's keeping them up at night is trying to figure out who they're going to be covering next year.

"The challenge with health care reform is that it injects some uncertainty in the system that means that, even in the aggregate, we don't know exactly how things are going to work out," he says.

Even if all of the rules were set in stone, there's still uncertainty about who will be in a particular insurer's risk pool and what the Supreme Court will do.

Among insurer worries: If the mandate goes, will the young and healthy buy in or will they wait until they are sick to buy insurance? And what if a state's new baseline coverage – called essential health benefits – is just too expensive?

"If essential health benefits package means that many of their customers will have to buy up from a Yugo to a Chevy, they are concerned that they may lose some customers in the buy-up process," Wildsmith says.

Karen Ignagni, CEO of America's Health Insurance Plans, the industry lobby, says insurers aren't waiting to find out. They're working with hospitals and doctors to change the way care is paid for and to keep costs down, just as Cigna's Cordani wants. She cites two studies that say Medicare plans run by private insurers are succeeding at keeping seniors from being readmitted to the hospital after procedures.

"We're leading the way, according to government data on readmissions," she says. "That's a win-win on both sides. There's real data now to support the contention that these strategies and these tools work very, very effectively."

What wouldn't work, Ignagni says, would be to ditch the individual mandate and still make insurers continue to accept all comers regardless of the status of their health.

"In every state that tried market reforms without bringing everyone into the system, we saw those markets blow up," she says.

Insurers will be just fine — particularly if the part of the law that subsidizes insurance for lower income Americans survives the Supreme Court challenge, according to Mila Kofman of Georgetown University's Health Policy Institute.

"We're looking at billions of dollars into the pockets of the health insurance industry," says Kofman, who is a former superintendent of insurance in Maine. "So I'm not worried about the health insurance industry and their financial health at all. This is going to be very good for their bottom line."

In fact, even on the day the Supreme Court looked like it was ready to toss the individual mandate, Cigna's stock was up 4 percent and other insurers saw similar gains.

By Jeff Cohen, WNPR