High-End Health Plans Scale Back to Avoid ‘Cadillac Tax’
Say goodbye to that $500 deductible insurance plan and the $20 co-payment for a doctor's office visit. They are likely to become luxuries of the past.
Get ready to enroll in a program to manage your diabetes. Or prepare for a health screening to determine your odds of developing a costly health condition.
Expect to have your blood pressure checked or a prescription filled at a clinic at your office, rather than by your private doctor.
Then blame — or credit — the so-called Cadillac tax, which penalizes companies that offer high-end health care plans to their employees.
While most of the attention on the Obama administration's health care law has been on providing coverage to tens of millions of uninsured Americans by 2014, workers with employer-paid health insurance are also beginning to feel the effects. Companies hoping to avoid the tax are beginning to scale back the more generous health benefits they have traditionally offered and to look harder for ways to bring down the overall cost of care.
In a way, the changes are right in line with the administration's plan: To encourage employers to move away from plans that insulate workers from the cost of care and often lead to excessive procedures and tests, and galvanize employers to try to control ever-increasing medical costs. But the tax remains one of the law's most controversial provisions.
Bradley Herring, a health economist at Johns Hopkins Bloomberg School of Public Health, suggested the result would be more widely felt than many people realize. "The reality is it is going to hit more and more people over time, at least as currently written in law, " he said. Mr. Herring estimated that as many as 75 percent of plans could be affected by the tax over the next decade — unless employers manage to significantly rein in their costs.
The changes can be significant for employees. The hospital where Abbey Bruce, a nursing assistant in Olympia, Wash., worked, for example, stopped offering the traditional plan that she and her husband, Casey, who has cystic fibrosis, had chosen.
Starting this year, they have a combined deductible of $2,300, compared with just $500 before. And while she was eligible for a $1,400 hospital contribution to a savings account linked to the plan, the couple is now responsible for $6,600 a year in medical expenses, in contrast to a $3,000 limit on medical bills and $2,000 limit on pharmacy costs last year. She has had to drop out of school and take on additional jobs to pay for her husband's medicine.
"My husband didn't choose to be born this way," Ms. Bruce said. The union representing her, a chapter of the Service Employees International Union, has objected to the changes. Her employer, Providence Health & Services, says it designed the plans to avoid having employees shoulder too much in medical bills and has reduced how much workers pay in premiums.
Proponents of the law say the Cadillac tax is helping bring down costs by making employers pay attention to what their health care costs are likely to be in the long run. "It's really one of the most significant provisions" in the Affordable Care Act, said Jonathan Gruber, the M.I.T. economist who played an influential role in shaping the law. "It's focusing employers on cost control, not slashing," he said.
Cynthia Weidner, an executive at the benefits consultant HighRoads, agreed that the tax appeared to be having the intended effect. "The premise it's built upon is happening," she said, adding, "the consumer should continue to expect that their plan is going to be more expensive, and they will have less benefits. "
The trend is accelerating. The percentage of employers revising their plans as a result of the tax has increased to 17 percent this year from 11 percent in 2011, according to a survey of United States companies released this month by the International Foundation of Employee Benefit Plans.
Although the tax does not start until 2018, employers say they have to start now to meet the deadline and they are doing whatever they can to bring down the cost of their plans. Under the law, an employer or health insurer offering a plan that costs more than $10,200 for an individual and $27,500 for a family would typically pay a 40 percent excise tax on the amount exceeding the threshold.
"I'm actually much more focused on the Cadillac tax in 2018 than on 2014," Steve First, a benefits executive at Pfizer, said at a recent meeting of employers. "For us, 2018 is a challenge."
Raising deductibles is one way to lower the cost.
Since 2009, the percentage of workers in plans with a deductible of at least $2,000 has doubled, to 14 percent, by 2012, according to the Kaiser Family Foundation. A little over a third of workers are in plans with a deductible of at least $1,000 a year.
Larger companies are also trying a variety of initiatives to improve the health of their workers — experimenting with an array of disease management and wellness programs, for instance, or even setting up their own work-site clinics as a way to sidestep the tax.
"These changes will take time, and employers seem to recognize that," said Barry Schilmeister, a consultant for Mercer.
Cummins, the Columbus, Ind., engine manufacturer is one example of a company experimenting with both approaches. The tax "is in our line of sight," acknowledged Dr. Dexter Shurney, the company's chief medical director.
Cummins has switched employees to plans with deductibles as high as $6,000 for a family and is working with health coaches to educate employees on the dangers of high sodium present in processed food, for example, as a way to start reducing the cost of treating chronic diseases like high blood pressure. "There's a lot of savings there," said Dr. Shurney. "It's not only good for us, but good for employees."
Even employers who won't talk about details acknowledge the tax is bringing about change. "You're getting taxed at 40 percent," explained Larry Boress, the chief executive of the Midwest Business Group on Health. "That kind of hit is something that is viewed as untenable by employers in general."
But one critic pointed out that employers have been raising deductibles and asking employees to contribute more for many years. Tom Leibfried, a legislative director for the A.F.L.-C.I.O., one of the unions whose plans are vulnerable to the tax, says the demands that workers pay more for their care is a perennial aspect of labor negotiations. "We're very concerned about the hollowing out of benefits in general," he said. "What the excise tax will do is just fuel that."
(Read More: Want a Glimpse of Obamacare? Look at Massachusetts)
Others say some of the plans at risk of being taxed as overly generous simply reflect of the high costs of care in certain regions. "These plans are costly, just by the nature of where they are," said Kinsey M. Robinson, the president of the Roofers' union, which has recently called for significant changes to the law or its repeal. "The cost of good health care is expensive." The law does make adjustments, including for older workers or those in certain high-cost professions.
Many employers say they were already taking steps to address rising costs, even as the increases have abated somewhat in recent years. "The 2018 date was looming out there," said Mary Cranstoun, the senior director of medical benefits for Providence Health, where Ms. Bruce works. But Ms. Cranstoun said Providence had already decided to move more of its employees into high-deductible health plans.
The goal was to have employees pay more attention to costs, which have been rising some 5 to 8 percent a year. "As for any other company, when you take that out long term, those are big trend numbers," she said.
The hospital system says the move is less about cost-shifting than engaging employees about their health, including offering financial incentives to undergo a health screening or using a high deductible to make them think twice about an expensive test.
The ultimate goal is to make sure the cost of coverage does not eventually exceed the system's ability to pay for it, Ms. Cranstoun said. "We really are committed to offering our employees benefits in the long term, so we really want to make sure that we can do so," she said.