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Discouraging a Cadillac Plan

I wrote a series of posts a while back about the skyrocking costs of municipal employee health insurance in Massachusetts and the impact it was having on town budgets.  These were triggered by a series of articles by Sean P. Murphy of the Boston Globe.  Well, Sean is at it again.

Today's story points out that starting in 2018 these 'Cadillac' health plans will be subject to a new tax as part of the health care bill.  This tax is aimed at discouraging  companies from offering very high-end health care plans.  According to Sean's article, a family health plan that costs more than $27,500 would be subject to a 40% tax on every dollar over that threshold.  The hope is that employers will stop offering such high-end plans as they are excessive benefits that go way beyond what a typical market-level benefit is.  Unfortunately, if towns continue to offer these plans to their municipal employees, these taxes will further eat into stretched municipal budgets.  Note that these thresholds may increase between now and 2018, depending on the rate of medical cost inflation.

And, changes to these plans must be agreed to by collective bargaining.  The unions in the article point out that they have given up other things, including higher salaries, in exchange for these benefits.  I haven't done a salary analysis of municipal workers, but I think it is time for them to give up some of these excessive health benefits.

Amazingly, one town in the article, Framingham, has a cost of $40,475 per year for one of its health plans.  I can't imagine how rich that plan must be.  In order to get a sense of cost, I went onto the Massachusetts Health Connector site to see how expensive a plan can be.  If you aren't familiar with it, this is the exchange set up by the state where indviduals can buy health insurance from private insurance companies.  All the plans are compared on an 'apples to apples' basis.  They have Gold, Silver, and Bronze plans.  As an individual, I buy health insurance for my family through this exchange.  We pay the market rates, and I find it all very easy to use.  Like in the new US plan, in Massachusetts, you can't be turned down for pre-existing conditions (they never asked when I signed up), but everyone must purchase insurance or face a penalty.

I went onto the site today to price out a 'Gold' plan for my family.  We have two late 40s adults and two teenage kids.  A Gold plan on the MA site has the following characteristics:

No annual deductible (the health plan starts paying for everything from dollar one), $20 copay for doctor visits, $15 generic prescriptions, $75 copay for emergency room visits and $150 copay for hospital stays.  Other than these copays and the premiums themselves, there is no out of pocket costs for health care under this plan.

I am pretty sure that's better than the health plan that all of us have.  There are two providers for this plan, Neighborhood Health Plan and Blue Cross Blue Shield.  Neighborhood is relatively inexpensive at $1534/month.  Blue Cross Blue Shield, the same insurer that most of the municipal employees have, charges $2172/month.  Both of these are below the $2291/month threshold where the 40% tax kicks in.  Imagine what those folks in Framingham are getting for $3373/month!

I am fine with municipal employees getting a Gold-level plan.  But, let's not make it Gold dipped in Platinum with a Palladium finish.  Unless you live in a town like mine (Bedford) that has already successfully dealt with this issue, you need to force your town government to work out an arrangement with the town unions to lower the health care costs.  This will help the town avoid the 'Cadillac' plan tax and free up municipal tax dollars for more police, fire fighters, and teachers.  And, urge your state legislators to support a bill on Beacon Hill that gives the cities and towns the flexibility to change their health care coverage independent of collective bargaining, as long as their plan is no worse than the state employee health plan (wonder what that costs?).

And, this doesn't even deal with the very high percentage of premium costs that are paid by the town vs. the town employee, the fact that many towns don't force their retirees onto Medicare, and that it doesn't take a long stint as a town employee to earn free health benefits for life.  See some of my previous blog posts and Sean Murphy's articles for more background on the overall issue.

Today's article has a ton of comments already on boston.com.  Many of them rail against the health care bill, citing the tax as a bad thing.  I view it differently -- I think that excessive benefits like this are Ok to be taxed, just like progressive income tax rates.  When you earn more, you should be able to afford higher taxes.  And, the threshold is so high that it isn't any sort of hardship for union members to get their plans back down into the tax-free zone.

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