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NEA Seeks to Overturn Obamacare’s ‘Excise Tax’ Penalty

By Stephen Sawchuk — May 01, 2015 3 min read
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Cross-posted from Teacher Beat.

Teachers’ unions provided a lot of the muscle to get the Affordable Care Act passed, but now they’re working to overturn one portion of the law that stands to affect their members: the law’s excise tax.

The National Education Association on April 29 signaled its support for a bill introduced by Rep. Joe Courtney, D-Conn., that would repeal the tax, which goes into effect in 2018.

In short, 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.

How exactly did teachers wind up in the middle of this debate? Well, in contract negotiations, public-sector unions have sometimes favored health-benefit increases (which aren’t taxable) over salary increases (which are). But now they risk falling afoul of the ACA’s excise tax.

The tax would fall on employers’ shoulders, but it stands to affect teachers and school officials because the costs would likely be passed on, either through general budget paring (like reduced programming in schools); higher up-front health premiums; or reduced health benefits. Unsurprisingly, this would also affect collective bargaining in states that require it, since salary and benefits are dealt with there.

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 made after the fact pushing the date of the tax back to 2018 from 2013.

Now, the NEA is trying to make the case for an outright repeal of the tax. A report commissioned by the union and released earlier this month argued that factors like age, industry occupation, and especially geographic location often serve to drive up premium costs, even if a plan doesn’t have especially cushy benefits. Using a typical Blue Cross Blue Shield plan, it found that geographic location sometimes led to much higher premiums--$15,959 for San Francisco compared to $10,214 for Huntington, W.Va.

It’s worth noting, however, that the analysis found that benefit levels do drive up average premium costs too--by 6.2 percent, the report estimates.

The report was written by Milliman, a Tampa, Fla.,-based actuarial-consulting organization. It’s based on assumptions, and it’s clear that you could probably get different answers by adjusting them. (Read the report and let us all know whether you think these assumptions are sound.) In any case, the NEA is saying this is proof positive of the damaging effects of the tax.

The NEA’s basic position is that it’s unfair that some teachers could have a modest plan benefits-wise and get hit by the excise tax, while others in a different area could hold a generous plan that doesn’t reach the threshold. Whether you’re penalized is based on factors outside of your control, the union argues (in an odd echo of its position on teacher evaluations, by the way).

“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,” Kim Anderson, the senior director of the NEA’s center for advocacy and outreach said in a statement.

A story from BNA in Washington suggests that the tax will increasingly become a topic of bargaining this year given the prevalence of three-year contracts. On the other hand, labor supporters fear that districts and municipalities will use the specter of the excise tax as a bargaining chip. The New York Times ran an interesting story on this topic a few years back.

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