'Cadillac' tax on health insurance worries unions

Massapequa, NY: Tuesday, September 1, 2009-- Members of Massapequa, NY: Tuesday, September 1, 2009-- Members of the Long Island Tea Party hold a rally at the Massapequa LIRR station against national healthcare. Photo Credit: Newsday / Audrey C. Tiernan

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ALBANY - Unions representing thousands of teachers and state and local government workers are bracing for the worst if Congress adopts a proposed "Cadillac" tax on health insurance.

The 40 percent levy on health care costs above $8,000 for individuals and $21,000 for families passed the U.S. Senate Finance Committee on Oct. 13. If the tax were to become law, experts said, government employees in New York would be hit hard because their powerful unions have negotiated benefits that go beyond medical and prescription drug coverage to include, among others, dental and vision.

The tax would be paid by insurers who then are expected to pass it along in the form of higher premiums, deductibles and co-pays.

"A lot of state workers would qualify because of the dental and vision, and the fact that health care is the fastest growing expense," said Kenneth Brynien, head of the 59,000-member state Public Employees Federation.

For and against

Supporters of the "Cadillac" tax, proposed to take effect in 2013, said it would act as a brake on runaway health care costs. They argued that employers and unions would scale back benefits to avoid the tax thresholds.

Employers "then would convert the resulting savings into higher wages or fringe benefits for their employees," said Paul N. Van de Water of the Center on Budget and Policy Priorities, a Washington-based think tank.

But opponents of the tax predicted widespread erosion of health benefits. They said people with comprehensive insurance plans would be unfairly pitted against those with lesser ones, in order to pay for coverage for the uninsured.

"You're penalizing people for having good health care benefits . . . and pushing everybody down to the lowest common denominator," said Stephen Madarasz, spokesman for the 85,000-member Civil Service Employees Association, the largest union of state workers.

Sympathy for the hardships of bureaucrats, teachers and police may be muted, however.

"These people have some nerve," said Fred Gorman, of Nesconset, an advocate for school property tax relief. "They pay next to nothing in premiums. They earn much more than the average homeowner, and now they want sympathy because someone says, 'You got to pay taxes on your health benefits.' "

Nonetheless, the public-sector unions, including CSEA and PEF, are sounding an alarm over the tax and lobbying to derail it.

The fight in Washington has revived questions about why government employees have such robust health care and whether it can be sustained when public treasuries have been depleted by the recession.

A review of benefits shows large disparities between the public and private sectors, with the exception of top executives and unionized manufacturing workers, who often have generous coverage.

Employee contributions to premiums also are lower in government. State workers and teachers pay between 5 percent and 20 percent depending on coverage type. Suffolk workers and Nassau workers hired before January 2002 pay nothing.

Unions are quick to point out that wages for government service are lower than for comparable work in business. Generous benefits, they said, offset smaller salaries and were won through tough bargaining.

"People went into public service even though they knew the salary was less because they knew there was [job] security, health benefits and a pension," said Brynien, of the state Public Employees Federation.

Politicians back richer health benefits because they often rely on union contributions and get-out-the-vote operations to stay in office. There's also less risk of voter backlash with benefit gains, compared to wage increases, political observers said.

"No working politician will stand up to the public unions," said Richard Epstein, a fellow at Stanford University's Hoover Institution, a conservative think tank.

Tackling LI's costs

Nassau and Suffolk officials have been working with unions to rein in health care expenses. But experts said costs are higher on Long Island and in New York City than many places, in part because of state mandates.

The Senate legislation acknowledges this and provides a limited remedy. Tax thresholds for New York and 16 other high-cost states would be set higher in the first year and gradually decline to the national level over the next two years.

Over time, the tax would affect more government workers and people in the private sector. "We're going to get hit and so is just about everyone on Long Island who has health insurance," said Carl Korn, spokesman for the 600,000-member New York State United Teachers union.

In Suffolk, passing along the tax would be complicated by the county's self-insured status, with benefit plans jointly administered by labor and management. Any change would require negotiations with the unions.

Jeffrey L. Tempera, Suffolk's director of labor relations, said, "I don't see how the county or any municipality could eat those costs."

Taxing "Cadillac" health plans

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Legislation adopted by the U.S. Senate Finance Committee includes tax on high-cost health insurance plans sponsored by employers, beginning in 2013. Here's how it would work:

-A 40 percent tax imposed on health plan costs above $8,000 a year for individual coverage and $21,000 for a family coverage.

-Retirees age 55 and up, and members of high-risk occupations such as police and construction would be exempt unless their plans were above $9,850 for individuals or $26,000 for families.

-Increases in these thresholds would be tied to the Consumer Price Index for all urban consumers, plus 1 percentage point.

-Insurers pay the tax but likely would pass along the expense to workers.

-In New York and 16 other states with the highest health care costs, the thresholds would be set higher in 2013, and gradually decline to the national level by 2016. The thresholds in 2013 would be:
---Individual coverage: $9,600
---Family coverage: $25,200

High-risk professions and retirees:
---Individual coverage: $11,820
---Family coverage: $31,200

Note: A health plan's cost is based on more than medical and prescription drug coverage. The total value also includes coverage for dental, vision and supplementary medical/catastrophic events, along with reimbursements under flexible spending accounts for medical expenses or health reimbursement arrangements and employer contributions to employee health savings accounts.

Sources: U.S. Senate; Henry J. Kaiser Family Foundation. Compiled by James T. Madore

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