Federal Workers Would Be Hard-Hit By the Middle-Class Health Tax

A quartet of union leaders was joined on a press conference call today by Rep. Gerald Connolly of Virginia, to present new data which demonstrates that Federal workers covered by FEHBP would-be hard hit by the Senate's proposed excise tax on higher-cost health benefit plans. Report findings indicate that single enrollees would be hit by a tax surcharge (or benefit cut) in the first year of the tax, and that their average cost over ten years would be $1,600 per year. Family plans were projected to face a $5,500 annual tax per year by 2022.

Larry Cohen, President of the Communications Workers of America, reminded listeners of the President's campaign pledge to ensure that all Americans have a plan like the one he enjoyed as a member of Congress. That plan is an FEHBP plan, Cohen noted, saying that these plans are likely to be cut significantly as a result of this task. "Our goal is to say there are other ways to fund this," Cohen added. The best way, he suggested, was to ensure that "those employers who don't pay, pay."

John Gage, President of the American Federation of Government Employees, laid out the union argument against the tax. "The excise tax will rise at about 3%," he said, "far below the 9% that BCBS plans have averaged over the last decade."

"Let’s face it," said Gage, "there will be a major cut in health plans and a major shift of costs onto the back of workers. This excise tax will result in such a huge benefit cut and all these increases, we feel this is the wrong way to go." Gage also said he would withhold judgment on what he called the "mystical" aspects of the health reform bill - those savings that tax defenders claim will offset the increase in benefit costs. "I have trouble seeing that those administrative efficiencies or more effective care will really stop our health plan from experiencing an extremely high excise tax that will be shifted onto our workers," said Gage.

“It’s a tax on ordinary plans to help pay for reform that will shift the costs to the workers,” said Fred Rolando, President of the National Association of Letter Carriers, adding: "“There are better and fairer ways to finance reform and we will continue to fight for them.”

Rolando added, "“Any 'Cadillac tax' that hits most FEHBP employees is by definition misnamed. This is not a Cadillac tax. It’s a tax on ordinary plans that will shift the costs of reform to workers.” Rep. Connolly was blunt about the tax's prospects: "I can assure you that the excise tax as currently contained in the Senate bill will not survive," he said.

(details of the unions' analysis can be found below the fold)

Highlights of Report: Federal Workers’ Most Popular Health Plan Will Be Hit Hard by Senate Excise Tax
(analysis by researchers at the Communication Workers of America)

The report examines how the FEHBP’s most popular health care plan – the Blue Cross/Blue Shield Standard Plan – will be affected by the 40% excise tax in the Senate health care bill. Forty-eight percent of all federal employees are enrolled in this plan, Including retirees and dependents, the plan covers nearly 3.8 million Americans.

The excise tax would be assessed on the value of health care plans that exceed $23,000 for a family and $8,500 for an individual starting in 2013. These “thresholds” would increase annually at the rate of general inflation plus one percentage point. Inflation is projected to rise 1.8% a year in the future, so the thresholds will increase about 2.8% a year. This is far below the 9% rate of increase that the BC/BS Standard plans averaged over the last decade. That huge difference means that the Blue Cross plans will get clobbered by the excise tax.

Here’s what the report projects for the BC/BS Standard plans with average dental and vision benefits if historic premium increases continue:

• Singles get hit by the excise tax in the first year – 2013. The family plan will start getting hit in the third year.
• Over the first 10 years, the single plan will face an excise tax of more than $16,000 per worker, or about $1,600 a year. The family plan will face an excise tax of more than $20,000 per worker, or about $2,000 a year.
• Even more shocking is how much the tax will be in the later years – when the gap between the much higher plan costs and the much lower threshold really kick in. By 2022, the report projects that the family plan could face an excise tax of $5,500 per worker. The tax on a single plan could be $3,500 per worker.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future