Fairfax utility: ‘Cold, hard’ economics likely to force dropped coverage

Wonkblog's Sarah Kliff breaks down what you need to understand about the Affordable Care Act, from politics to premiums. (Kate M. Tobey/(In Play))
October 2, 2013

The Fairfax County Water Authority said that it will likely drop insurance coverage for its nearly 400 employees if taxes on generous health-care plans take effect as planned in 2018 under the federal Affordable Care Act.

The public utility, a quasi-governmental entity that provides water to 1.7 million Northern Virginians, said that the tax would eventually cost it millions of dollars a year.

Under the ACA employers that provide relatively expensive coverage will have to pay taxes to the federal government starting in 2018. Those taxes would cost the authority $60,000 in the first year and shoot up to nearly $7 million a year by 2028, the authority said in a letter sent this week to Virginia’s congressional delegation.

Unless the law is changed, the authority said it is likely to drop its insurance benefit entirely, although health economists noted that it could just scale back its coverage to avoid the taxes. In a letter sent Monday, the authority urged Virginia's two senators and three congressmen from Northern Virginia to find a way to block it.

“[I]t is irrefutable that the ACA is fatally flawed,” wrote Burton Jay Rubin, chairman of the authority’s government relations committee. “If it is intended to make health care coverage available to those who do not have it, it does so only by jeopardizing the coverage earned by those who have it.”

The so-called “Cadillac tax,” is already a top concern for many companies, insurance experts said. While other parts of the law have already prompted companies such as Trader Joe’s and Home Depot to drop insurance for part-time workers, the tax coming in 2018 could give employers an incentive — or excuse — to reduce or eliminate benefits for full-timers.

“It comes up in every conversation I have with an employer,” said Larry Levitt, senior vice president of the Kaiser Family Foundation. “Part of it is employers are looking to use the tax as a rationale for cutting back on benefits.”

While some private companies have been vocally opposed to the ACA, which is also known as Obamacare, it is more unusual to have a quasi-public entity weigh in. Rubin said in his letter that the authority’s position was “not influenced by political or policy preferences” but based on “the application of the law to the cold, hard economic facts.”

The Cadillac tax was intended to discourage employers from offering overly generous insurance perks. The thought was that plans with low deductibles and low co-payments give workers little incentive to be frugal consumers of medical services, driving up health-care costs for everyone.

A 40 percent excise tax will apply to plans that cost companies more than $10,200 a year for individuals and $27,500 for families. Because that threshold is the same in every state, plans subjected to the tax in places like Northern Virginia, where the cost of health care can be expensive, won’t seem as generous as in other parts of the country where costs are lower.

Only about 15 percent of insurance plans will hit that threshold in 2018, but about half could be affected by 2025 because of rising medical costs, said Bradley Herring, a health economist at Johns Hopkins Bloomberg School of Public Health. The law calls for the threshold to rise 2 percent a year — well below typical medical inflation, which the authority said is projected at 8 percent annually.

“So much of the ACA is focused on getting people covered, expanding health insurance, ” Herring said. “But oh, by the way, you folks who have too much health insurance, we’re going to try to get you folks to conform, too.”

In his letter, Rubin said the authority expects to pay $13,450 to cover individual employees and $33,300 per employee family by 2018 for coverage that it does not consider to be “ ‘Cadillac’ in nature.” That would make the utility subject to enormous taxes — much higher than the tax it would pay if it provided no coverage at all.

“[I]f we provide our workforce with no health care coverage, we merely pay the Government $2,000 for each employee,” Rubin wrote.

Rubin and other officials with the Fairfax County Water Authority declined to comment on the letter, which arrived as the ACA has received renewed attention in the race for Virginia governor. Attorney General Ken Cuccinelli II (R), the first attorney general in the nation to file suit against the health-care law, opposes expansion of Medicaid under the law. His Democratic opponent, Terry McAuliffe, supports it.

Lena H. Sun contributed to this report.

Laura Vozzella covers Virginia politics for The Washington Post.
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