More health insurance upheaval is coming your way. The value of your health insurance is shrinking, and you may be paying more for less this year and in years to come.
Perhaps your employer has taken away the choice of plans with large provider networks and instead is offering those with a much narrower selection of doctors and hospitals. Some companies are enticing workers with lower premiums if they leave preferred provider organizations (PPOs), which let them use any provider, and choose health savings accounts. These are tax-advantaged savings arrangements coupled with catastrophic coverage and high deductibles. Others require employees to pay higher premiums for the plans they have.
Blame those changes on the Cadillac tax, a provision in the Affordable Care Act, which calls for a 40 percent excise tax on employer-provided health insurance. Employers pay the tax, but ultimately it’s passed on to some 60 million workers who have employer coverage.
The tax will be levied on the portion of health insurance premiums that exceed $10,200 for single and $27,500 for family coverage. Because premiums continue to rise (this year the average family premium from employers is about $17,500), they have a strong incentive to lower the cost of coverage to avoid paying the tax. Many have begun making changes this year, and experts believe there will be more adjustments as 2018 approaches when the tax takes effect.
About four million people and about one-quarter of all employer plans will be touched by the tax the first year. However, Steve Wojcik, vice president of the National Business Group on Health, told me, “It’s going to affect almost every plan as the years go on.”
Wojcik explained the thresholds for determining the tax are indexed to the Consumer Price Index, but the price of healthcare grows faster than the CPI and will continue to rise. As that happens, more employer plans will bump into those thresholds and trigger the tax.
Why the tax?
Framers of the Affordable Care Act, urged on by economists, needed a way to pay for subsidies intended to help the uninsured buy coverage, and they argued the tax could bring in some $150 billion to help the cause.
But there was another reason, too. Supporters of the law and others wanted the tax to deter workers from going to the doctor too much. In other words, make them have “more skin in the game.” The thinking goes like this: If they use healthcare services more wisely like saying “no” to your doctor’s advice and avoiding care you don’t need, the price of medical care in the U.S. will drop.
That, of course, assumes doctors and hospitals won’t raise prices.
Since there’s almost nothing to prevent them from doing that, they could respond by simply offering more services, procedures and tests to keep their incomes up. History has shown they’ve done that when cost containment measures were imposed.
History has also shown that people do cut back on medical services when they have to pay more. But they often can’t discriminate between what care they need and what they don’t. The result, of course, is that serious conditions may go untreated.
The tax had another big selling point. MIT economist Jonathan Gruber argued that as the tax began to keep costs down, employers would return the savings to workers in their paychecks. Most of those gains would go to those with incomes under $200,000.
Few people expect those savings to materialize or that employers will share any if they do. Any “theoretical” savings is a “pipe dream,” U.S. Rep. Joe Courtney, a Democrat from Connecticut, wrote in a letter to the editor of the New York Times in early October.
Who really believes employers are going to give broad wage increases to compensate workers for lower health benefits?
It’s not just high-wage workers who will be affected by the tax even though it’s thought they are the ones with generous insurance. It will hit middle-income workers, those in unionized industries, government employees and others in manufacturing jobs.
A broad group of employers and unions are fighting to repeal the tax, but say realistically that won’t happen until after the presidential election next year if it happens at all.
There’s really not much you can do except complain to your elected representatives and try to choose your insurance plan carefully this year. But remember, in order to keep premiums low you’ll most likely have to pay higher deductibles and high coinsurance. That’s a trade-off everyone faces whether or not there’s a Cadillac tax.
What changes do you see in your insurance this year? Write to Trudy at trudy.lieberman@gmail.com.
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