‘Cadillac tax’ delayed until 2020
The “Cadillac tax” provision of the Affordable Care Act, which the Ohio Public Employees Retirement System has targeted for repeal, has been delayed for two years.
Congress recently passed an Omnibus federal spending budget bill that included a two-year delay of the tax, to extend its implementation to 2020. Earlier this month we asked our members to write to Congress to ask for its repeal, and we would like to thank all OPERS members who did so. The delay gives us two more years prior to its implementation, and we will again seek full repeal of the tax beginning next year.
The Cadillac tax would be assessed to health care plan providers when their coverage value exceeds certain thresholds. It would cost OPERS tens of millions of dollars if we kept our health care plan for retirees under 65 the same as it is today, but the actual result would be higher out-of-pocket expenses for participants as we adjust coverage to avoid the tax.
The Ohio congressional delegation was instrumental in spreading our message on the consequences the tax would have on our health care plan. We appreciate their support as well as their assistance to ensure that plan threshold escalators were built into the two-year delay language.
While the OPERS health care plan design already has been set for 2016, we will be discussing the delay of the tax as we create the plan design for health care coverage in 2017 and beyond.
The Cadillac tax, originally scheduled to go into effect in 2018, is a 40 percent excise tax that would be imposed on OPERS and other plan sponsors when the total premium cost of a health care plan exceeds $10,200 for re-employed retirees and retirees under 55. The threshold is $11,850 for retirees 55 and older who are not re-employed.
OPERS’ current plan for single coverage costs $11,500. With the rising cost of health care, we would have been subjected to an estimated $25 million in taxes the first year alone if we had retained the same level of health care coverage we have now. A recent study showed that nearly half of U.S. employers would have been subjected to the Cadillac tax in 2018, and that 80 percent of employers would reach it by 2023.
Michael Pramik
Michael Pramik is communication strategist for the Ohio Public Employees Retirement System and editor of the PERSpective blog. As an experienced business journalist, he clarifies complex pension policies and helps members make smart choices to secure their retirement.
There are some in Congress that think with a new president this may be repealed, others do not and still others think when the time comes it will be pushed back again Im I right or wrong
Jeff,
Yes, we’ve read commentary that the tax certainly is now on shaky ground with the implementation delay.
–Ohio PERS
Since you raised the cost of health care for 2016 for those of us still under the age of 65 because of this tax, are you now going to lower the health care costs because it will not go into effect until 2020, and even then you very well know its doubtful it will ever go into effect.
Dede,
The delay certainly will factor into our 2017 health care plan.
–Ohio PERS
Thank you for keeping all of the OPERS members informed. Much appreciated.
I am looking for the “Sample Letter” for the cadillac tax. Can you direct me to it? It is not easy to find, which makes people give up.
Thank you.
Mary,
We found it unnecessary to retain the sample latter after Congress voted to delay the tax until 2020. Thanks for your interest. It will be interesting to see what the new president and Congress will do regarding this tax.
–Ohio PERS
How can they legally not publish this or not retain this? I looked for it to.
Jim,
It’s not necessary any longer since Congress delayed the tax for two years.
–Ohio PERS
Any responses as to why OPERS will still charge higher premiums in 2016 when not necessary ?
Tom,
OPERS is not charging higher premiums in 2016 because of the Cadillac tax. Out-of-pocket expenses are higher for that reason, but not premiums.
–Ohio PERS
You are charging higher costs for those of us that returned to work as a public employee supposedly because of the Cadillac tax.
Bill,
You’re correct that premiums for re-employed retirees in the Medical Mutual Interim Plan might be higher than for those not in this plan, but it’s not because of the Cadillac tax.
–Ohio PERS
Thanks for the update. If the tax does start in 2020, is it applied with the 2018 threshold amounts or will they follow the original baseline that increases it by the CPI each year (about a third of health care inflation). It seems like they are in the same position as they used to be with the medicare ‘doc fix’ where every year they extended it made the pain of not extending it bigger.
David,
As we understand it, the thresholds will rise with inflation.
–Ohio PERS
I am very unhappy with the very large increase in cost to my OPERS Health Care Coverage. I just found that my January 2016 pension will be reduced by over $343 because of what OPERS is deducting for my spouse’s and my health care coverage, even though my spouse’s health care benefits has been slashed by 1/3rd and will be eliminated entirely in 2 more years.
I plan to cancel my OPERS coverage, because I am paying a lot more for a lot less.
I went back to work for the State of Ohio, because of OPERS’ actions to eliminate my spouse’s health care coverage, and I feel this large increase in health care cost is helping to force OPERS retirees to waive their OPERS heath care benefits.
The stock market has recovered its losses since the Great Recession of 2008, but you wouldn’t know it by the increases in cost and slash health care benefits by OPERS to OPERS retirees.
So if there are 10000 rehired retirees, and I’m paying $1,000 more a year because I have a part time job with no benefits. That equals to $10,000,000 for 2016 that OPERS blamed the Cadillac tax on. Well now it doesn’t go into effect until 2020. So where is that 10 million going??????????
Tom,
We have explained this before, but we’ll say it again: We did not raise premiums in 2016 because of the Cadillac tax. Out-of-pocket expenses went up, but that money obviously is not paid to OPERS.
–Ohio PERS
I need to go to pharmacy school to learn which meds are on which Tier andor take my book to the doctor visit so I can help him figure out which med to prescribe for me it seems. That co-pay is a doozy. I needed Albuterol to help me breath better due to a virus but it was $64 and another product to clear a related symtom was $24. Awful! Bought cough syrup for $4 on Dec 28 and same thing on 1’9 for $14. These co-pays and deductibles are not people friendly and hurt the budget.
Michael…..you said three times that the raise in premiums, copays, and deductibles for 2016 and 2017 was to prepare non medicare retirees for the Cadillac tax, and now you are saying that the changes you made were not related to the cadillac tax? Why not put some money in each of the non medicare recipients health savings account to help with the cost of deductibles for 2016 since it is now clear that you made a mistake and jumped the gun!
Thomas,
We’ve never said that premiums were increased because of the Cadillac tax. Deductible levels and co-pays, yes. But not premiums.
–Ohio PERS
Please help me understand ~ Why does out of-pocket and deductible increases cause huge premium increases? My husband has been in the insurance industry since 1982 and he is even confused by your responses.
Kim,
The out-of-pocket increases do not cause premium increases. If you are seeing premium increases it’s likely because we have switched to an age-and-service-based allowance structure, as opposed to covering nearly the entire premium like we used to do.
–Ohio PERS
On two separate calls to your office, I was told my 2016 medical premium had increased because I was switched to the interim plan. If I would resign my state position, my premium would reduce. Surely I have not been dreaming since you first put the scare in us back in May that our costs would go up if we continued working for a public employer. Over again, you stressed this was due to the Cadillac tax. If you didn’t make health care plan changes, you would potentially face huge fines from the IRS. You thus decided to faze in increases 2 yrs prior to implementation of this provision (which has now been pushed further into the future.) Now you insist none of this is related to the Cadillac tax. Who is taking accountability for jumping ahead and implementing changes before it was certain the provision would not be undone? What about those who already quit their jobs to avoid premium increases? I have lost confidence in OPERS health care management team. I agree with Mr. Quade. Why not put money into a savings plan to help cover 2016 increases for non-medicare, rehired retirees, now that you’ve pushed us into this interim plan in anticipation of something that appears will never happen.
Karen,
Here is why your premium is higher as a re-employed retiree: When we increased out-of-pocket expenses (not premiums) for 2016 because of the Cadillac tax, we gave a premium price break to retirees who were not re-employed. The logic for not including re-employed retirees in this temporary premium reduction was that re-employed retirees had additional income to help them offset the increased out-of-pocket costs.
If premiums appear to be higher overall, it’s because we have begun transitioning to the new age-and-service allowance tables that base the allowance on your years of service and the age at which you initially enrolled in OPERS health care.
Here is a citation from the Oct. 12 Wall Street Journal: “According to a new study by the American Health Policy Institute, the excise tax is already forcing American employers to revisit the health care they provide to employees. Almost 90% of large employers surveyed by AHPI reported taking steps to prevent their company from having a plan that triggers the excise tax in 2018.”
This statement was published before Congress voted to delay the tax but after health care plans for 2016 had to be finalized. We will review our 2017 health care plan in light of the two-year delay in the tax.
–Ohio PERS
Ref. the reply to Karen, retirees employed in the private sector also have additional income. but retirees returning to a public position were singled out for the increase.
Bill,
People who go to work in the private sector are no longer public employees. But being a re-employed retiree is codified in Ohio law, and they are considered public employees.
–Ohio PERS
Uh Michael, maybe you should research your own video https://m.youtube.com/watch?v=gBFC0msyIJQ. Pay attention after 1 min mark.
Tom,
Yes, I did just that before I provided the previous answer. Since you insist, I will quote it verbatim:
“You may have heard about something called the Cadillac tax. And for active employees or re-employed retirees who are considered active employees, if the total annual cost of their health care plan – think of it like a premium, the total part that the retiree pays and that OPERS pays – is above a certain threshold, OPERS would have significant financial excise tax penalties.
“We’re gonna start getting ready for that a little bit. We didn’t make drastic changes to the plan. When people get their open enrollment materials they’ll see a few changes. But it’s really the over-65 we’re more concerned about.”
As you can see, there is absolutely no mention of increasing premiums whatsoever. As we have stated many times (hopefully for the last time now), we did not increase premiums in 2016 in response to the Cadillac tax.
–Ohio PERS
I have a question about dental insurance. For 2016 the maximum benefit for out of network reduces to $1250. per year. In network, the benefit increases to $1750. Obviously, this is coercion to be in network. If we are already paying additional, voluntarily, to be out of network, what is the difference to the insurance company whether the max is pay in network or out? Thanks for any insight you can provide.
Charles,
That is a good question for someone in the insurance industry. Benefits for in-network service often are higher than those for out-of-network service. CNBC reported on a recent study by America’s Health Insurance Plans that found that “people who get common treatments from doctors and facilities that aren’t covered by their insurance plans routinely receive bills that are anywhere from 118 percent to a whopping 1,382 percent higher than what the federal Medicare system is billed for the same services.”
–Ohio PERS
I don’t like the deductible or copay for an additional 100.00 for generic prescriptions for the year and now it’s 200.00 for brand names. What’s the purpose for this? We should be Saving money using the generics and now you want to make it unaffordable. My pension is 270.00 less in 2016 too because of my spouses insurance going up. I’m really disappointed with these increases . I think it’s too steep to do this to retirees although our spouses will end up losing it anyway. The Board doesn’t understand why we picked a certain benefit so our spouses could have insurance. Unless you walk in our shoes, which someday you will, then you will understand.
I was very surprised when I used my prescription coverage and found out my insulin (previously free) would cost me $670.00. I feel that One
Exchange did not do me any favors. I was not given a selection of plans for me to choose. They told me what was my choice. Now I am wondering if this was standard or was OPERS aware of what was going on?
Jacqueline,
The purpose of the call with OneExchange was to have them guide you in your selection of a Medicare plan. If you are saying they didn’t offer any choices, that’s counter to the way it was supposed to work. We will look into it.
Thanks,
–Ohio PERS
If the increased cost that was begining to be imposed in 2016 due to the Cadillac Tax was for increased deductables and out fo pocket expenses, why were (are) you collecting them up front?
These should be paid/incurred when one uses the health care. What will these windfall $ collected be diverted to or used for?
You stated that “If” one is seeing premium increases (believe we all are) that this is due to OPERS switching to an age/service based policy. We are paying those premium increases in addition to this “tax”
Steve,
What do you mean collecting deductibles up front? We don’t collect deductibles. A deductible is the amount that you pay every year before your Medicare plan begins to share in the costs.
–Ohio PERS
I think Steve may be referring to the statement in the Fall 2015 Ohio Pers News (page 4): “OPERS has moderately increased out-of-pocket expenses, including deductibles and copays, for 2016 in anticipation of the excise tax.” It sounded like OPERS was just using the tax as an excuse to increase the cost to the retirees, since th tax was not actually in effect yet, and has now been delayed.
Dave,
OPERS, like many other entities that provides health care coverage, did not use the tax as an “excuse” to raise costs.
–Ohio PERS
Like others on this blog, I am irritated that OPERS seemed to associate the increases in deductibles and the doubling of my wife’s premium with the Cadillac tax, even though it wouldn’t have come into effect for two years. Is any thought being given to at least taking our premiums out on a pre-tax basis, since it seems clear that we’re going to be paying more, Cadillac Tax or not?
Dave,
We have looked into withdrawing premiums on a pre-tax basis, but in order to do so we would have to establish an IRS Section 125 plan. The IRS guidance is clear that we cannot do so because we are a qualified retirement plan for retirees and not an employee plan.
–Ohio PERS
Here is proof that health care coverage was reduced by the Cadillac Tax. This is copied and pasted from opers site.
OPERS’ current plan for single coverage costs $11,500. With the rising cost of health care, we would have been subjected to an estimated $25 million in taxes the first year alone if we had retained the same level of health care coverage we have now
I am assuming the $25 million is the Cadillac tax in which they are not required to pay now. Am I correct?
Jim,
I’m not really following that logic. First, the Cadillac tax has not been repealed — only delayed until 2020. Second, the $25 million was a projected amount that we would have had to pay in 2018 if we made no changes to the level of our coverage.
Rather than pay any tax, we, like most other employers/pension systems, would reduce benefits to remain below the threshold for a “Cadillac” health care plan.
We never denied that coverage has been reduced because of the pending tax. We have stated that we increased out-of-pocket costs in 2016 because of the specter of the tax. What is incorrect is to say that we increased premiums because of it. That didn’t happen.
–Ohio PERS
I think it’s wrong to raise our spouse premium the way y’all did not leaving us with a lot of options
I recently called PERS to check on any possible issues with Health Care and/or Pension due to accepting a Part Time job with another PERS participant (city govt). This job, since part time, does not offered health care. I was told by the PERS rep that since the employer was a PERS member I would see a deduction of $74 per month in my Pension check due to the Cadillac Tax. Since the tax was delayed until 2020, why would they charge/deduct this money as it seems unnecessary at this point? I don’t understand how PERS can collect a tax that has been delayed and is not officially in place.
Richard,
We’re sorry if that’s what you were told, but premiums did not increase because of the Cadillac tax. Out-of-pocket expenses increased, but not premiums.
–Ohio PERS
I said, I was told that because I went back to work within PERS my premium increased and this was due to the Cadillac tax. I called back and had it explained to me why my premium went up and whoever explained that it was due to the C. tax was wrong. I was told the increase is because I would be taken out of Med. Mutual & put into Preferred Med. Mutual. the job is part time with no health insurance. Why take me out of Med. Mutual and put me in Preferred Med Mutual (that was the increase). Why not just leave me were I am since it is part time & no medical. You would if I went private sector. I am not costing the system anything. My retirement Plan is not cheaper than when I was full time.
Richard,
We’re sorry that is what you were told. But we raised out-of-pocket expenses because of the specter of the Cadillac Tax. Now that it has been pushed back two years, we will revisit this expense increase for next year’s coverage.
–Ohio PERS
You said you had to raise the cost because there are more retirees since the 70’s and 80’s. However,
you forget the fact that employees’ wages are very much more than then, and thus the contributions to opers from our paychecks were much more. It seems you are trying to get us all to the point where we just give up and go without insurance. I won’t have medicare because I worked 30 years without the county taking any money out for it. I feel it should have been brought to my attention so many years ago.
This is so frustrating and worrisome.
Jackie — all you have to do is survive another five or more years, and all the folks, old snd young, will have universal healthcare, like Canada, etc. You will just have to make your doctor appointments a year before you need them. For those of you that think the Affordable Healthcare Plan has nothing to do with the health insurance chaos we see today, well, there is no space here to debate the issue. If the ACHP had proceeded exactly as planned, we would be in worse shape. And don’t expect a new administration to return our health costs to the days of old. We have had excellent care, very low cost, over the years; and now, for myltiple reasons, we will pay for it. I am so sad to know that our fine, hardworking senior citizens have to suffer through this. If you get desperate, sell your holdings, spend your money, go bankrupt, moved to an assisted living facility and let medicaid pay your medical bills.
I just had major surgery and being a retiree $4,900.00 for the deductible and maximum out of pocket is hard to come up with. Now that the Cadillac tax has been delayed will these costs go down?
I know retirees in other State pension plans with a lot less members than OPERS has and their insurance deductibles and maximum out of pocket expenses is a lot less than OPERS offers.
I took a reduced pension when I retired so that my husband would have health care insurance coverage. Now that you are dumping spouses from all health care coverage and we have to pay for spousal coverage on our own, will I get my full pension amount on a monthly basis reinstated?
I don’t expect the pension differential to be retro active…just from the date you actually begin Zero health coverage for the spouse.
Mary,
When you chose a pension payment plan that included an amount for your spouse, your spouse received a sum of money from your pension. That does not end, no matter what the rules are on health care.
The only way to modify your payment plan is after a life-changing event: the death of a beneficiary, marriage or remarriage, or divorce, dissolution or annulment of marriage.
–Ohio PERS