One of the state's largest employers is proposing to scale back its employee health plans to avoid a massive tax penalty under the new federal health care law.
The University of Minnesota is considering changes for 2014 that would increase copays for primary and specialty care, require employees to pay deductibles, and establish a cheaper, but more limited plan for Twin Cities area employees, among other things.
The changes would apply to employees but not students.
University human resources vice president Kathy Brown said the cut backs are necessary to avoid paying an estimated $48 million "Cadillac tax," an excise tax included in the Affordable Care Act that is meant to discourage employers from offering overly generous health insurance.
"This is an expense that the University simply cannot take on," Brown said in an email to members of UPLan.
"We now are faced with the challenge of the Affordable Care Act and some of the requirements of that law," Brown said in an interview with MPR News. "We've been blessed in the past that we have not had to ask our employees to pay deductibles... and we've been able to keep our premium trends down as much as possible."
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That may change next year.
University employees don't pay deductibles now unless they are in a health savings account plan. But starting next year, they may be required to pay deductibles ranging from $100 to $400, depending on their plan. The university is also proposing to increase copays. For instance, employees on the school's basic plan pay $15 to see their doctor. That may increase to $25 next year. And people enrolled in the school's health savings account plan may see an increase in their out-of-pocket costs.
The university may also offer a so-called Accountable Care Organization plan, a lower-cost option with a smaller network of providers, Brown said.
"We looked at all the options that we could come up with to try to put our plan in a position to try to avoid the excise tax while continuing to make it a high quality plan, affordable and offer employees choice," Brown said.
The proposal is being reviewed by negotiators with the university's labor unions as part of ongoing collective bargaining. Historically, the school has offered only one health plan to all employees.
UNION OFFICIALS UNHAPPY
Union employees see problems with the proposal.
Barbara Bezat, president of the American Federation of State, County and Municipal Employees Local 3937, which represents technical workers at the university, said the school is moving too fast to deal with the new tax, which doesn't kick in until 2018.
The increased insurance costs will likely hit union employees hardest, Bezat said.
"Employees, in particular the unionized employees who are the lowest paid at the university, feel that they should not have to bear the burden" of the excise tax, she said.
Brown, the university's human resources vice president, said the school needs to make changes starting next year to accommodate collective bargaining cycles that lock in benefits for two-year cycles and to ensure the revisions clear the bar by 2018. And she said the administration is looking at ways to offset employees' increased insurance costs.
THE OBJECTION TO CADILLAC PLANS
The Cadillac tax is essentially a penalty on high-cost health plans, explained Jean Abraham, associate professor in the University of Minnesota's Division of Health Policy and Management.
It's a 40 percent excise tax that applies to insurers and self-insured employers for any part of the annual health insurance premium that exceeds $27,500 for family coverage or $10,200 for a single policy.
The non-partisan Congressional Budget Office predicts that the tax will raise $80 billion over 10 years to help pay for the expansion of coverage under the new health care law.
But the tax is also meant to discourage employers and insurers from offering plans that impose very little cost on enrollees, Abraham added.
"We know that very generous plans tend to ... encourage higher utilization of services," she said. "By enacting this tax, they are hoping that employers and insurers shift the types of plans that they offer and that this will, in turn, lead to lower utilization and lower premiums."
In private, other Minnesota employers are doing the same calculation the University of Minnesota has done, said Kate Johansen, who manages health policy for the Minnesota Chamber of Commerce, the state's largest business group.
"You won't see any of them speak publicly about it because nobody wants to be the first employer to come out and say, 'yeah, we're going to have to shrink your benefits,'" she said. "The University of Minnesota has to do it because they are publicly funded, and if they don't, that $48 million is a taxpayer expense."
EDITOR'S NOTE: An earlier version of this story incorrectly stated the single coverage threshold value. The current version is correct.