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Government Workers' Cadillac Health Plans Will Soon Be History

Millions of state, county and municipal workers all over the country -- many of whom support the new healthcare reform law -- face possible health benefit cuts or cost increases several years from now as a result of that law. But the "Cadillac plans" that many public employees have today would have been in danger even if reform had gone down in flames.

According to the Boston Globe, in some Massachusetts towns a family health plan for municipal employees costs from $30,000 (Waltham and Lawrence) to $40,000 a year (Framingham). Other towns and cities in Massachusetts are already at or near the level at which they will have to pay an excise tax on a portion of those premiums, starting in 2018.

From that year onward, under the federal reform statute, a family health plan that costs more than $27,500 a year will be subject to a 40 percent excise tax on the portion that exceeds that amount. An individual plan that costs more than $10,200 will be subject to the same tax on the portion over that threshold. The trigger point for police and firefighters is slightly higher. Insurance companies are expected to pass the cost of this tax on to employers and consumers in the form of higher premiums.

A few months ago, I wrote about a study showing that the Cadillac plan tax might have less impact on lowering insurance costs than some lawmakers supposed. It turned out that much of the reason for the higher costs of these plans had to do, not with the level of benefits, but with regional health cost variations and the type of work a person did. Some of the premium cost was unexplained, which smells like health plan profits extracted from poor government negotiators.

But before we bemoan the incompetence of the government, let's consider the level of insurance costs reported in the Globe, which was far higher than in the study. $30,000 a year is more than twice the average cost of family insurance, most of it employer-based. $40,000 a year is about two-thirds of the median family income in the U.S. These plans were excessively costly years ago, yet taxpayers keep paying for them.

How about other factors mentioned in the study? Massachusetts has among the highest health costs in the country (not, by the way, because of state health reform). In addition, the first responders in the cited communities probably have insurance costs well above the average for public employees. Still, there are a lot of paper pushers in county and municipal offices - not to mention teachers -- whose risk for injury or illness is not above average for the population.

The real difference between the municipal plans and those typically found in private industry is that, because of union contracts, their cost-sharing is much lower than those of most other plans. Public employees pay less of the insurance premium, or none at all, and their deductibles and copays are low. So they not only pay less for healthcare than most other people do, but they have less incentive to restrain their use of it. (Full disclosure: I have a teacher, a school nurse, and a transportation agency employee in my family -- all of whom have excellent health benefits.)

Unfortunately, this gravy train can't keep rolling along. The Cadillac plan tax is actually small potatoes compared to the cost to the public of maintaining these municipal plans. And having the state or federal government slap on price controls across the board is not a solution. The question is, will the same unions that support health reform be willing to deal with financially strapped local and state governments on health benefits?

Image supplied courtesy of AFLCIO at Flickr.