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Capital NY – Health chairs predict problems with coming ‘Cadillac’ tax

By Katie Jennings, 5/18/15

State legislators from both sides of the aisle are concerned that a soon-to-take-effect Affordable Care Act tax will have a “devastating effect” on health plan coverage for both public and private employees.

The so-called “Cadillac tax” provision of the Affordable Care Act isn’t set to kick in until 2018, but Assembly health committee chair Richard Gottfried and Senate health committee chair Kemp Hannon both raised concerns over its impact during a event on Friday organized by the fiscally conservative Manhattan Institute.

The controversial Cadillac tax, or excise tax on high-premium insurance plans, imposes a 40 percent tax on health premiums above a threshold of $10,200 a year for individuals and $27,500 for families. It is expected to bring in $87 billion in federal revenue by 2025, according to the most recent Congressional Budget Office analysis.

Gottfried, a Democrat from Manhattan, said “the approach of the Cadillac tax ought to be regarded by almost everybody as an oncoming train or worse.”

The initial idea behind the tax was to limit high-cost “Cadillac” coverage plans that offered generous benefits with little cost-sharing, effectively shielding employees from the cost of care.

From the time that it was announced, the tax has been fiercely opposed by labor unions that argued it would have an outsize impact on unionized workers who often receive very generous health benefits packages.

There has also been growing concern about how much taxpayers might end up paying for Cadillac health plans offered to city and state employees. A letter obtained by The New York Times in 2013 from former deputy mayor for operations Cas Holloway to the head of a labor coalition said “the Cadillac tax would cost New York City $22 million in 2018, increasing to $549 million in 2022.”

Hannon, a Republican from Long Island, said that the tax wouldn’t just hit New York’s public employees.

“We have many of our large corporations that will be tagged with having Cadillac plans,” he said. “We have many of the Taft-Hartley unions being tagged with having Cadillac plans.”

The Taft-Hartley health plans are for private sector unionized employees and are collectively bargained with each employer.

There hasn’t been a comprehensive study of just how many health plans could be hit by the Cadillac tax in New York State. But Politico’s Brian Faler reported last month on a survey by benefits consulting firm Mercer, which found that “about one-third of employers will be hit by the tax in 2018 if they do nothing to change their plans.”

The number is expected to rise to 60 percent by 2022.

The fear is that leading up to 2018, many unions and employers might have to reduce their benefit plans in order to avoid the tax. But supporters of the Cadillac tax, like Manhattan Institute fellow Yevgeniy Feyman, argue that the cap on employer-sponsored benefits and the associated increase in cost-sharing on behalf of employees will work to drive down total health care costs.

In a recent Forbes post, Feyman suggested that the existing structure incentivizes employers to offer more generous health benefits. But if there is a cap on benefits from private employers, then “wages are likely to rise as a result.”

Looking toward 2018, when the tax goes into effect, Hannon said, “It’s going to be a very pervasive type of reaction and New York won’t be alone, so Congress may actually have to take steps [to address it].”

Eight House members from New York recently signed on as co-sponsors of H.R. 2050, a bill that seeks to repeal the Cadillac tax, including Paul Tonko, Brian Higgins, Christopher Gibson, Sean Patrick Maloney, Jerrold Nadler, Jose Serrano, Hakeem Jeffries, and Nita Lowey. It was referred to the House Committee on Ways and Means on April 28.

The panel discussion, moderated by E.J. McMahon, the president of the Empire Center for Public Policy, touched on several other key issues related to Affordable Care Act implementation in New York State, including the state’s health insurance exchange and the Delivery System Reform Incentive Payment (DSRIP) program, the overhaul of the state’s Medicaid program.

Gottfried, a staunch advocate for a single-payer system, criticized the New York state health insurance exchange, which currently enrolls more than 2.1 million people, for being hard for consumers to navigate.

“When people go to the exchange they’ve got a blizzard of information that nobody can ever figure out. So they make their choice the way I pick wine at a restaurant—I look at the red with the lowest price,” he said, generating laughter from the audience. “With my taste in wine I don’t know if it makes any difference, but the consequence for health care is people then get surprised when they find that they’ve bought the plan with the highest deductible and the narrowest provider networks.”

Hannon thinks the exchange “has been relatively successful” when compared to the goals that it set out to achieve. But he questioned whether the exchange would be able to run without state funding by the end of this year.

“I’m not sure it’s going to meet the requirement of self-sustaining that the governor said it ought to be,” he said.

One of the key trends discussed on all of the panels throughout the day was how the integration of provider networks, encouraged by the Performing Provider Systems established by the DSRIP program, might affect care delivery.

Gottfried voiced his support for more integrated provider systems, but also questioned the role that insurance companies would ultimately play in the new reform landscape.

“If the providers are forming a network and the providers are doing care coordinating and the providers are getting a capitated payment and distributing it among themselves, at some point we have to ask, why are we paying millions of dollars a year to health plan C.E.O.s?” he said. “What are they bringing to the table?”