WENATCHEE — Big area employers that offer generous healthcare plans are already studying how a tax created by the Affordable Care Act could result in higher costs or reduced coverage for their employees, starting in 2018.
Counties, cities, school districts and other employers with powerful employee unions could be the most affected.
“I don’t want to say, ‘The sky is falling. The sky is falling,’ because it’s probably not, but if everything stands as it is now, we’re probably going to have some problems to resolve,” Cathy Mulhall, Chelan County administrator, said Wednesday of the so-called “Cadillac Tax.”
A key mechanism for funding Obamacare, the Cadillac tax imposes a 40-percent excise tax on annual healthcare premiums that exceed $10,200 for the individual and $27,500 for families.
The tax is charged only on the portion of the premium that exceeds those thresholds.
Mulhall said that about 18 of the total 406 employees enrolled in county-provided health insurance have health plans generous enough to be affected by the tax, if it were in effect today. But with annual increases in healthcare premiums, virtually all employees would be affected by 2018, when the tax actually takes effect, she said.
That’s because health insurance premiums are expected to increase at a much faster annual rate than the tax thresholds, meaning the tax affects more and more recipients of employee-provided health insurance over time.
Mulhall estimates that the tax could add $428,000 or more to the county’s annual costs for employee health insurance if premiums increase by 8 percent per year between now and 2018. This year, healthcare costs at the county are expected to increase only 4 percent, she said.
The county became a healthcare “self insurer” this year in an effort to reduce costs overall. It covers its employees’ healthcare costs with its own funds rather than paying an insurance provider.
The county’s contribution to each employee’s healthcare plan is currently capped at $600 per month, she said. That’s enough to keep employee contributions to a slim $12 per month for the lowest-cost plan or $179 per month for its top-of-the-line plan.
“Counties, cities and schools are the ones I’ve seen most concerned about this,” Kristine Loomis, a partner at Cordell, Neher & Company, a Wenatchee accounting firm, said Wednesday. “It could push employers to change their insurance offerings.”
The Cadillac tax is one of about a dozen new taxes created to help the act pay for itself, Loomis said.
Many of these smaller taxes have already taken effect, but national news reports point to the Cadillac tax as the biggest expected revenue source. The federal government’s own estimates show that the Affordable Care Act won’t break even without it, the reports say.
Forbes magazine reported in August that national labor unions successfully lobbied to delay the tax until 2018, fearing impacts on their own members.
With so much uncertainty swirling about what Affordable Care Act will look like in a year, much less four years, Loomis said it’s still too soon for many administrators to be completely focused on its potential affects.
“It’s kind of hard to get too wound up about what we’re going to see in 2018, because of what we’ve seen so far,” said Loomis, referring to a one-year deferral from the act already approved for big employers. She said widespread opposition to the act could lead to more changes.
“I can’t say don’t keep it on your radar,” she said. “It’s going to be interesting to see how it shakes out in the next year and a half.”
Officials for the city of Wenatchee, the North Central Educational Services District and the Chelan County PUD all say they are still studying potential affects of the tax.
At Chelan County, Mulhall said the take-effect date may seem distant, but with county union contracts that could be negotiated for up to six years, the tax is something she needs to start thinking about and planning for now.
“We’re trying to be pretty mindful of it as we’re looking at our benefits and cost structure,” Mulhall said, pointing to a need to educate employees about how they could be affected. “Obviously, congress could do a lot between now and then.”