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Health law’s ‘Cadillac tax’ worries Sonoma County officials


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.

county logo. jpgThe 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.

Robotka said labor leaders have been cooperating in helping to keep health premium costs under control, and will continue to do so as they go into negotiations in 2015 for new contracts.

“We’ve got a lot of talking to do,” he said. “If it looks like costs are getting out of control, as we have already done, we will grapple with it, labor and county together.”

Chadbourne admitted that her projection is dependent on a large number of unpredictable factors, but she said it is her job to warn Supervisors of possible risks, particularly since the Cadillac Tax would be paid by employers, not employees.

“I have to talk about the worst-case scenario,” she said. “The reality is, it may be a little bit better.”

Chadbourne said it is clear that without changes in the law or in the cost of the county’s two health plans, Sonoma County will be on the hook for millions of dollars in taxes that year.

The tax is part of the complex funding mechanism to pay for the health care reform act. The Congressional Budget Office has estimated that the tax, intended to touch only the wealthiest of companies and plans, will offset about $80 billion of the cost by 2023, about $5 billion when it first goes into effect in 2018, according to the non-partisan Robert Wood Johnson Foundation.

Critics, however, say that the rate of medical inflation will push many moderate plans over the threshold, just as Chadbourne’s estimates suggest in Sonoma County.

The City of Santa Rosa, with about 1,200 full time employees, has lower health premiums than the county, in part because city’s retirees are covered under separate insurance, city Risk Manager Lynne Margolies said. It does not appear that any city employees would be subject to the Cadillac Tax if it were imposed today, but she plans to keep a close eye the tax since an unexpected spike in medical costs could push the city over the threshold as well.

While Sonoma County supervisors had heard previously about the possibility of exposure to the Cadillac Tax, also known as an excise tax, they seemed startled last week by Chadbourne’s estimate.

“We’re all hoping that $4.5 million will go away or become much less,” Supervisor Mike McGuire said, holding out ope for changes in the federal law or unexpectedly low medical inflation.

Public and private unions are agitating at the federal level to change or eliminate the Cadillac Tax because health benefits have been an important way to enhance members’ compensation without making employers increase salaries, said Victor McKnight, a Petaluma insurance broker and a consultant on Affordable Care Act implementation.

Employers, including governments, are only just beginning to confront the potential cost of the tax, he said.

“Everybody knows about it in the industry. We’re basically trying to deal with all the other issues right now,” he said. “And we’re not talking about it as much as we should be.”

Rabbitt said employees, both public and private, will be surprised to find the value of their health plans decreasing as the 2018 tax deadline approaches.

“What’s going to happen in 2017 is going to be very, very interesting, and mind-blowing for a lot of people, He said. “We’re all going to have our insurance plans dropped to a lowest-common-denominator and deal from there,” he predicted.

9 Responses to “Health law’s ‘Cadillac tax’ worries Sonoma County officials”

  1. bear says:

    You folks are unclear on the concept.

    Kaiser is not everywhere. Everyone can’t live in SC because of the insane housing costs. I wish Kaiser was here, where I can afford to live.

    The County gives a fixed $500/month contribution to employee health care.

    Employees pay the rest – in my case $15K+ a year for two.

    So any restriction of health care providers hurts employees – especially out-of-state retirees, and doesn’t save the County a dime.

    We earned these benefits working at short wages for you. NOT the managers, the rest of us.

  2. Rick says:

    Two Things.
    “by discouraging the unnecessary use of costly medical tests and procedures that can be a product of high-end, luxury policies.”
    I am glad the gov’t knows better than doctors what is necessary. I never heard that would occur.

    I have a friend in the county. He says the county’s medical pays them $500 a month. The employees pick up the difference. There you go, those with a cadillac plan will pay the difference. No cost to the county. Problem solved. If you like your plan, you can keep it. They won’t tax you out of it.

  3. Vic says:

    County employees don’t need a Caddy in a used Pinto economy. Give them barebones and give the rest of us a break who support this whole travesty.

  4. PapaESoCo says:

    Give all of them the Kaiser option, period. That will take care of the Cadillac thingy.

  5. steve humphrey says:


    Excellent sarcasm. Well done!

  6. R.B. Fish says:

    It’s depressing to say but this article reveals the liberal Democrat BOS is a bit stunned now that they are realizing that their wonder boy Obama is actually going to transform ”their” Cadillac lives and their nothing they can do about. Furthermore, the BOS and the unions (maintaining their arrogant stance), because they are one in the same, will continue with the liberal Democratic charade saying “Oh, Oh” we have a problem and we need to raise taxes. It will only be a few more years down the road that the further transformation will occur as the liberal Dems (if Hillary Bob gets elected) that the only pot of gold to make the correction is union pension money. “It’s time to be patriotic my brothers and sisters and share your wealth!!” Even though many of these intelligent people realize they are what Stalin used to call ”useful idiots” they will continue down the public path seeking to protect their own personal lives saying sorry to the taxpaying public but ”it’s out of our control.” How depressing it is not to have one person in leadership with a moral, fiscal, transparent and accountable compass to represent the people. Just rise money to buy the votes of the uneducated and masses who believe there are more kitty cats to be saved. There can be only so many ”interesting” years as Rabbit claims until it reaches the point of diminishing returns. To help the transformation along will the horrors of the SMART train. Drink up men we ride at dawn!

  7. Follower says:

    Sonoma County Supervisors are just more liars making up horror stories just like Harry Reid warned us about.

    We all knew that we would have to pass the bill to see what’s in it.

    Everybody knows that if you like your health care plan, you can keep your health care plan. You’re just going to have to pay a little extra out of pocket on top of your mandated, IRS enforced premium.

    We all know that the average family of four will save $2,500 a year in premiums just like the President told us.

    Obviously County employees aren’t the “average family of four”.

    That’s why we pay TAXES people! …to cover stuff like this.

    I’m really getting sick of this right wing conspiracy trying to sabotage our President and ALL the Democrats in congress’ signature achievement.

    We all know that not ONE Republican ever supported any of this and now that they’re all throwing temper tantrums, we see just who they are.

    Maybe we need to send a few IRS agents around to give them all “time outs” since they’re acting like little children.

    If you’re too stupid to realize that you’re too stupid to be trusted with something as important as your own Health Care decisions, you really need to just shut up and stop trying to use your “party of NO” to obstruct this mandate from the people.

    It’s the “law of the land” and everybody knows that only the President has the power to change the law of the land and THIS President would NEVER make any changes in his own law so just GET OVER IT!

  8. Nancy says:

    Who could have guessed obomber care has major cost implications for the people who didn’t read the bill.

    Wonderful SEIU steps up and states they will speak to their partner in obomer care, Obama, and make the necessary changes to exclude government from these troublesome taxes.

    This whole scheme is unworkable and filled with a minefield of tax, fee and schemes which were designed to screw big business but are screwing poor little public unions too.

    How will SEIU tackle this one and get their partner to agree to another change without Congressional approval?

  9. steve humphrey says: