Health and Safety

Obamacare “Cadillac Tax”: Devastating to Union Workers

November 7, 2014
By Neal Tepel

Washington DC – It’s expected that the costs of health insurance for unionized workers will increase drastically due to the Affordable Care Act’s tax on so-called “Cadillac plans.”

Starting in 2018, a 40% excise tax will be imposed on higher-cost health insurance plans. These include individual policies that cost $10,200 or more and family health insurance that cost at least $27,500. The tax will be required on insurance plans from both government and private-sector employers, and will affect most union-member health programs.

The purpose of the tax was to give both employers and employees an incentive to hold down health spending. The goal was to provide options that encouraged them to shift from expensive traditional plans to lower-cost policies with higher deductibles, so employees would be discouraged from using health-care services that, at least in theory, they didn’t need. But the tax also was intended to help finance the Affordable Care Act by generating an estimated $12 billion in 2018 and $20 billion in 2019 to pay for the cost of providing health care for the uninsured.

To compound the problem, the ACA excise tax is not adjusted for geographic differences within the United States. It will disproportionately affect those living in high-cost states, where medical services are likely to cost more. For example, a back procedure that would cost an average of $22,397 in a New Jersey hospital would cost about $9,558 in the South and $10,482 in the Midwest.

The net effect of the Cadillac tax under Obamacare is to shift the cost of caring for the uninsured to the high-cost states in the Northeast and on the West Coast. Other federal programs have had a similar effect: Federal reimbursement rates for Medicaid, the federal-state program that provides health care to the poor and the disabled, are calculated according to a formula that takes into account the average per capita income for each state. Consequently, New Jersey, New York, California, and Connecticut are among the 15 states that get the minimum 50-50 federal reimbursement, while Mississippi, West Virginia, Arkansas, South Carolina, Idaho, and Utah all get the federal government to pick up more than 70% of their costs.

The “Cadillac Tax” will be devastating to labor organizations, since unions generally provide their members with an extensive program of health benefits. It will force rate increases for union members in both the public and private sectors in 2018.

November 6, 2014

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