Obamacare Forces Tough Choices for Municipal Unions

Obamacare is forcing cities to ask their municipal unions to consider cheaper health benefits for workers before a tax on expensive health plans kicks in in 2018.

The "Cadillac tax" was included as part of Obamacare after economists said expensive healthcare allowed for workers who bear little of the cost makes them insensitive to healthcare expenses, reports The New York Times.

Many communities and school districts over the years negotiated generous healthcare packages with unions, and workers bear little of the cost of their own healthcare. Now, public unions are being warned that unless they rein in their healthcare costs, the tax could threaten pay raises and jobs.

ObamaCare: You Can Win With the Facts

Massachusetts Institute of Technology economist Jonathan Gruber, a paid consultant to the Obama administration, said the tax was created to force state and local governments to bring their healthcare costs under control and to "shift compensation away from excessively generous health insurance toward wages."

Some liberals, though, say they are frustrated that the tax is being used against unions, and unions are becoming angry that the tax is being used as a bargaining chip.

Former Labor Secretary Robert Reich said he thinks the tax "was misguided all along," and when Obamacare was being written, he worried that the tax would become a blunt bargaining instrument.

The term "Cadillac tax" is misleading, said Steven Kreisberg — director of collective bargaining and healthcare policy at the American Federation of State, County, and Municipal Employees — because it "connotes a certain aspect of luxury in these health plans that is just factually incorrect."

The law requires that plans costing $10,200 annually for individuals and $27,500 for families — with higher thresholds for retirees and high-risk employees — be taxed at 40 percent on the amount they go over the limit, according to Business Insider.

The thresholds will change with inflation, but even so, many cities expect their health plans to reach those thresholds before 2018.

In New York City, for example, this year's health benefits cost the city $7,128 for individuals and $18,249 for families, which is above the national average but still below Cadillac-tax levels. However, city officials expect their rates to reach the threshold by 2018 or shortly after.

In April, Caswell Holloway IV, New York City's deputy mayor for operations, told the head of one of the municipal unions that the new tax would cost the city $22 million in 2018 and increase to $549 million in 2022.

"We know that, on the current trajectory, we're going to be hit with that tax and it would increase very steeply," Holloway said.

Lower-cost plans, though, would involve more out-of-pocket costs, and unions are not happy about that situation. According to the Kaiser Family Foundation, public employees nationally now pay 12 percent of the cost for individual plans and 25 percent for family plans.

Cities aren't the only places that will be hit by the tax.

In Orange County, Calif., teachers in the Newport Mesa Unified School district accepted higher out-of-pocket costs to reduce increases in premiums after learning the district could face a $2.3 million tax burden in 2018.

ObamaCare: You Can Win With The Facts