Sonoma County taxpayers could face $4.5 million a year in penalties under the so-called "Cadillac Tax" set to go into effect in 2018 as part of the Affordable Care Act, say county officials.
Under one scenario, the potential penalties could wipe out most of the savings from pension changes and other benefit reductions the county negotiated with its unions in 2013. Those changes were supposed to save the county about $6 million per year.
The tax is part of the sprawling health care reform package passed in 2010. It is intended to raise revenue to pay for various aspects of the plan, including federal subsidies for people who cannot afford health insurance, and also to help keep down the rate of medical inflation by discouraging the unnecessary use of costly medical tests and procedures that can be a product of high-end, luxury policies.
Supervisors suggested last week that they would look at ways to hold down the value of the health plans to avoid having to pay the tax.
"We need to offer something other than these Cadillac options," said Supervisor Shirlee Zane. Yeah, the benefits are great, but it's really expensive."
Nationally, counties are just beginning to grapple with the possible cost, said Paul Beddoe, deputy legislative director of the National Association of Counties. Counties, both unionized and non-union, look at health plans as a valuable recruiting tool when competing with private employers who may pay more generous salaries.
Despite the attention the issue is receiving, Beddoe said the full scale of the problem is unclear. The association is surveying its members and is hoping to have better data on how many counties might be affected by the tax by later this summer.
"I really do worry about the (Cadillac) tax, what that really means, and I think it's been glossed over," in most discussions of the Affordable Care Act, Chairman David Rabbitt said last week after hearing the staff estimate. "If we got hit with a $4.5 million bill today, what the heck would we do?"
The national health care overhaul places a 40 percent tax on insurance premiums above a set level - in its first year likely to be $10,200 for a single employee and $27,500 for a family, though that would adjust for inflation in later years.
The average family plan in the U.S. cost $16,351 last year, according to the latest annual survey by the Kaiser Family Foundation and the Health Research & Educational Trust.
Premiums for the most expensive family plan available to Sonoma County employees exceed $33,000 per year, though the vast majority of workers opt for a cheaper plan offered by Kaiser Permanente, which cost just more than $22,000 for a family.
About 56 percent the cost of Sonoma County work force health plans is paid by workers under a 2008 plan in which county government pays $6,000 per year no matter what plan an employee selects. The county pays a total of $18.1 million per year for health premiums while employees pay $23 million. The county also pays about $4 million per year in other health care allowances for members of some of the unions representing county employees.
If the tax were imposed today, only about 300 county employees covered by a county-run insurance system would be above the threshold, county Risk Manager Marcia Chadbourne said. The remaining 2,900 covered employees are in the Kaiser plan, which currently falls below the threshold.
If, however, one assumes a 7 percent medical inflation rate for health premiums, a figure suggested by the county's benefits consulting firm, The Segal Company, all county employees will exceed the threshold when the tax is imposed in 2018, Chadbourne. That would trigger an average of $800 per year in taxes for each Kaiser-enrolled employee and about $2,900 each for the more expensive county-run plan.
"That tips you off it will likely be the county health plan that will need some plan design alignment," Chadbourne said in presenting her estimate.
Unions that negotiate salaries, health insurance and other benefits for county employees quickly dismissed Chadbourne's estimate, saying her projections were little more than guesswork.
"There is no basis for those numbers," said Bill Robotka, a representative of the Engineers and Scientists of California, Local 20, which represents more than 200 counselors and other professionals in county government. "She is doing a kind of speculative calculation."
Indeed, after decades of steep increases in the cost of medical care, the rate of medical inflation began dropping in 2010 was about 1 percent between mid-2012 and mid-2013, according to the Commerce Department, the slowest rate of growth in four decades.
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