Student Well-Being

Unions Back Scrapping Tax on High-Cost Health-Care Plans

By Stephen Sawchuk — May 12, 2015 3 min read
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Teachers’ unions provided a lot of the muscle to get the Affordable Care Act passed in 2010—but now they’re supporting efforts to overturn one portion of the law that stands to affect some of their members: the law’s excise tax on high-cost employer-provided health-care plans.

Both the American Federation of Teachers and the National Education Association have pledged their support for legislation introduced April 29 by Rep. Joe Courtney, D-Conn., that would repeal the tax, which goes into effect in 2018. The Courtney bill has more than 70 cosponsors, including three Republicans.

Rep. Frank Fuinta, R-N.H., introduced a similar bill in February, cosponsored by 31 Republicans.

The tax would require employers to pay a penalty of 40 percent on the amount by which the aggregate cost of a plan exceeds a certain threshold—$10,200 for individual plans and $27,500 for family plans. The thinking behind this tax was that so-called “Cadillac” plans with richer benefits made consumers less responsive to the skyrocketing costs of medical care.

In contract negotiations, public-sector unions have sometimes favored health-benefit increases, which aren’t taxable, over salary increases, which are, thereby putting their members at risk of exceeding the limits.

Although the tax would fall on employers’ shoulders, it stands to affect teachers and school officials because the costs would likely be passed on, either through general budget paring, which could affect school funding; higher up-front health premiums; or reduced health benefits. This would also affect collective bargaining in states that require it, since salaries and benefits are dealt with there.

Shifting Views

During the law’s drafting, unions were among those that pushed to carve out some exemptions in the law for heavily unionized fields, including for some medical workers and firefighters. (Teachers weren’t among the exceptions.) They also supported revisions pushing the date of the tax back from 2013 to 2018.

A report commissioned by the 3 million-member NEA and released in April argued that factors like age, occupation, and especially geographic location often serve to drive up premium costs, making some plans vulnerable to the tax even if they don’t have especially cushy benefits.

Using a typical Blue Cross Blue Shield plan, the report found that geographic location sometimes led to much higher premiums—$15,959 for San Francisco compared to $10,214 for Huntington, W.Va. The analysis did find, however, that benefit levels do drive up average premium costs—by 6.2 percent, the report estimates.

The report was written by Milliman, a Tampa, Fla.,-based actuarial-consulting organization and was based on certain assumptions about the costs of plans and the kind of benefits included. Even so, the NEA sees its conclusions as proof of the damaging effects of the tax.

The NEA’s position is that it’s unfair that some teachers could have a plan with modest benefits and be affected by the excise tax, while others working in a different area could hold a generous plan that doesn’t reach the threshold. Whether teachers are penalized is based on factors outside of their control, the union argues.

“Now that it’s clear that the excise tax will have arbitrary and negative consequences, Congress must repeal the excise tax to avoid inflicting harm on American workers and their families,” said Kim Anderson, the senior director of the NEA’s center for advocacy and outreach, in a statement.

The 1.5-million-member AFT, in supporting Rep. Courtney’s bill, argues that the excise tax compromises the ACA’s original goals. “The Affordable Care Act was intended to help all Americans access high-quality health care without depleting their paychecks and compromising their ability to save for the future,” AFT President Randi Weingarten said in a statement.

Long-Term Outlook

Michael Podgursky, a professor of economics at the University of Missouri who specializes in the economics of education, said that a “significant number” of teachers have plans that will be affected by the tax, though he isn’t certain exactly how many. He also says that the number of plans affected will only grow over time.

“The problem with the Cadillac tax is it will immediately hit some teacher plans, but it’s indexed to the general rate of inflation, which is very low,” said Mr. Podgursky. “Over time, more and more plans will cross that threshold and become classified as Cadillac because the cost increase for insurance has exceeded the overall inflation rate.”

He said that one way districts might avoid the tax is by offering less-expensive plans, but increasing salaries. However, since salaries are also taxed, “that will lower the relative after-tax compensation for teachers,” Mr. Podgursky said.

A version of this article appeared in the May 13, 2015 edition of Education Week as Unions Back Bill to Scrap Tax on High-Cost Health-Care Plans

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