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Got a great health plan? Get ready to kiss it goodbye

If your insurance comes from your employer, expect some painful changes related to Obamacare. Companies will pay a steep price for offering 'Cadillac' plans.

By MSN Money Partner Aug 9, 2013 12:30PM
This post comes from Beth Braverman at partner site The Fiscal Times.

FiscalTimes logoUnder Obamacare, the government won’t start taxing employers who offer so-called “Cadillac” health benefits to their workers for another five years, but companies are already starting to cut back on such plans.

Man patient with cast on leg using crutches in exam room © DAJ, amana images, Getty Images“Employers can’t wait until 2018 and make one huge change to their plans,” says Tracy Watts, a senior partner with Mercer. “They’re already starting making changes now, so that in 2018 it won’t be as hard for employees.”

Under the Affordable Care Act, companies will have to pay an excise tax on plans that cost more than $10,200 for an individual or $27,500 for a family. The employer will have to pay a 40% tax on the cost each plan above those levels. (There will be higher thresholds for retiree health plans and for high-risk professions, though the details of those have yet to be announced.)

What constitutes a 'Cadillac'
Many people would be surprised to learn that their current plan would be considered a “Cadillac” plan under Obamacare rules.

“Most of us pay high premiums, and don’t feel like we have a high-cost policy,” says Cynthia Weidner, vice president of health and welfare and consulting at HighRoads. “Everyone thinks, ‘I don’t have a Cadillac plan, my coverage stinks.’”

Actually, even the average health plan costs more than the Cadillac thresholds mandated by Obamacare -- about $10,522 per employee, according to the Society for Human Resource Management. (The law includes premiums paid by both the employer and the employee.) At that price, employers would pay a 40% tax on the $322 difference—about $130. For a company with 10,000 employees, that equates to a $1.3 million tax bill.
However, it’s not just large companies that are worrying about the excise tax. “It’s an issue for every single employer, particularly for state and local governments,” says J.D. Piro, senior vice president of Aon Hewitt’s health and benefits legal team. “Governments tend to offer more expensive health benefits than private businesses, and workers often accept lower wages in exchange for those benefits.” (For this reason, unions strongly objected to this provision in the law before it was passed.)

Making it more difficult for employers, some of the minimum requirements of health plans under Obamacare are driving up the cost of plans, just as employers are looking for ways to push costs down. All plans, for example, must now fully cover all preventative care treatments, maternity care and emergency care.

A Mercer study conducted last year found that 42% of employers said that if they made no changes to the plan, they’d be hit by the excise tax in 2018. Mercer projects that it will hit 55% of employers by 2022.  The survey found that 59% of employers would take steps to lower the cost of their plans, with 26% saying they'll do whatever is necessary to lower costs below the threshold amount.

Smaller companies hit hardest
Critics of the Cadillac component of Obamacare claim that tying the tax merely to the total cost of the plan unfairly puts the burden on smaller companies and those with older, sicker workforces, because they may pay more money for coverage that’s not as generous as that of bigger firms with better bargaining power with the insurers. “Because the tax is triggered by high premiums, the tax will hit many workers with ordinary, not exceptionally generous health plans,” Elise Gould wrote in a May paper for the Economic Policy Institute.

The “Cadillac” thresholds are indexed to inflation, but health care costs have historically increased at a faster pace than inflation, so they will hit an increasing number of employers each year. The intent of the tax is to force consumers with the best health plans to have to pay more costs out of pocket, which, in theory, would force them to make more cost-conscious decisions when it comes to expensive tests and frequent doctor’s visits.

Already, companies are increasing the share of costs shouldered by employees by raising deductibles on the plans that they offer. From 2008-2011, the average employee’s deductible increased 17%, but last year alone the deductible went up 13%.

In addition to higher deductibles, employers are raising co-pays and reducing prescription drug coverage as much as possible while still meeting the ACA mandates. They’re also offering new, lower-cost plans to employees and increasing the employee-cost of their most comprehensive plans. Employers are hoping this will drive more consumers into the lower-priced plans and allow them to eventually drop the highest-priced plans, Watts says.
Looking beyond health insurance plans themselves, employers are increasingly turning to wellness programs as a means of cutting their health care costs, Piro says. So expect to see even more benefits like gym reimbursement, smoking cessation initiatives, and disease management programs.

Another option that more employers are considering is moving toward a defined-benefit health plan, in which they give their employees a set amount of cash (below the Cadillac threshold), and allow them to choose and purchase insurance for themselves via private exchanges. The upshot of such benefits is that employees can design and select their own plan options, but the overall value of their plans will still likely be less than their benefits they currently enjoy.
“It’s ironic because the point of the Affordable Care Act was to expand coverage to the 30 million people who don’t have it,” Watts says. “But a byproduct of that is that the employer-sponsored plans just aren’t going to be as good as they once were.”

More from The Fiscal Times:

Aug 9, 2013 2:50PM
What did anybody think was going to happen? That costs would magically come down when you cover 30M indigents and otherwise uninsurables? But Mr. President, what are you going to do when your union supporters want to keep their cadillac plans? (esp. in the northeast, where $10,200 doesn't buy you much).

That we're even still discussing this idiotic plan is beyond me. It's the single biggest handout to big pharma/insurance in the history of the free world, yet somehow there are still people who think it's going to address the real problem: rising medical costs.
Aug 9, 2013 3:04PM

Don't worry .....It's Free!


Democrats are as dumb as doorknobs. Bigger government paid for by someone is always the answer.


And I bet you still haven't figured out why they passed it before reading it and knowing what was in it.

Aug 9, 2013 3:24PM

Of course Congress will not have to deal with this as they will have their own  "afordable care" made just for them.

Farbeit that they should have to suffer the rigors of the masses. They are elite after all.

I say we raise them to the next level. Up and out with the entire lot  !!

How much worse could it get? Really, Ask yourself honestly!

Re Elect No one!!!

Aug 9, 2013 6:09PM
What was it Obama said? "If you like your health care plan, you can keep your health care plan."

I guess he meant what's left of it after the carnage caused by ACA.
Aug 9, 2013 4:38PM

As we get closer to January 1, 2014 - it becomes more apparent each and every day why Nancy Pelosi said  " We need to pass this bill and read it later".


Would any of you sign a contract not knowing what was in it first?



Aug 9, 2013 6:56PM
Don't worry.  The democrats will create an out for the unions, government employees and congressmen.  The rest of us will pay for it.

Obamacare sucks.  If you voted for Obama, enjoy it when they tell you to bend over.

Aug 9, 2013 3:16PM

My company, well in advance of the requirement for those with ocer 50 employees, just dropped family coverage, increased deductible 100% and out of pocket amount by 20%.

People who oppose this ACA, many for different reasons depending on how it affects them personally, be patient. This is a snowball headed straight to h--- and will burn itself up an an ever increasing rate.

Even my two low information young nephews realize they dont need maternity or birth control pills and have figured out a $95 penalty is a lot preferable to a $350-$400 a month policy.   

Aug 9, 2013 3:13PM
Aug 9, 2013 5:13PM
Everyone is missing the point.  The single biggest problem with health insurance is the underlying cost of health care in the US.  There is something fundamentally wrong with our system when we pay twice as much as they do in other developed countries, with outcomes that are no better and often worse.  Fixing the cost issue should be the number on priority of Congress.  Unfortunately, both parties are on the payroll of the health care industry (pharmaceutical companies, hospital corporations, AMA, insurance companies).
With health care rising double digits every year, all health plans will be considered Cadillac plans within five to seven or eight years.
Aug 9, 2013 4:31PM
Damn fools, you should have read it before you passed it!!!!!
Aug 9, 2013 3:41PM
It is simple : a republic is not a good government when voters do not vote (fully eligible voters) and politicians are allowed to be in office for more than 2 terms.  Yes these good ol boys keep allowing their own people to be had by every business venture that can pay a senator or representative enough money to get a vote.  I say no more than 2 terms....No more than claimed income for the previous 3 yearts of the person being voted in and Absolutely no benefits or considerations that ANY OTHER AMERICAN would recieve for doing their hired to do job.  The bastards all think they know best for what is good forthier constituents and don't even act in the seat they are in as they were voted on to do.
Aug 9, 2013 9:11PM
This whole law STINKS like a dead fish.  Which was why 60% of Americans didn't want it when Obuma and the Dumbicratic Party shoved it down our throats.  De-Fund this turkey and tell your Senators/Congressmen to repeal it before we all go bankrupt like Detroit!
Aug 9, 2013 9:06PM
How's that "hope and change" workin' out?????
Aug 9, 2013 8:49PM
Why do more than 300 million Americans allow 535 members of the new American Taliban to control almost every aspect of their lives??? When will we fight the Taliban????
Aug 9, 2013 5:52PM
"Obama Phone? Where can I sign up? what carrier is it through? is there a data plan and is it an iphone5?"

Yep, you can get the very latest iPhone for free and also unlimited talk, text and data.  I think they pay $5 a month for unlimited everything.  I know a few people that have the phones.   They all live in Sec 8 free housing, get $1000 a month in food stamps, have all their utilities and healthcare paid for by the govt.   Most of them drive new Cadillacs but have to park them on the street because there aren't any garages.  I see them once in awhile playing blackjack at the Indian casino in town.
Aug 9, 2013 2:41PM

We voted for the government we have; we continue to propagate a government that will use any means necessary to grow. People forget that the government is actually a living breathing thing and has evolved by Darwinian rules to survive, expand and occupy on its own.

Aug 9, 2013 4:09PM
"The excrement will make physical contact with an electric powered oscillating air current distribution device".

Aug 9, 2013 8:36PM
The taxes in Obamacare are exceptionally unfair.  In reality, many of these taxes are invoiced to 'employers' or 'insurers' or 1%'ers, but its the working stiff that pays those taxes after all the shuffling around.  In fact....Obamacare is really cruel to the working stiff because it is a tax compounded by the same taxes the following year.  In other words...the premium increases 2-3% because of the HIT tax paid by insurers in 2014, this is then multiplied by 2-3% increase in premium after another HIT tax the following year, which is then multiplied by 2-3% increase in premium after another HIT tax the year after this, and so on and etc..etc..etc..
Aug 10, 2013 12:35PM
if you have two arms, two legs, are not in a wheel chair, and have just half a brain, you have no right to beg all your life from others.
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