Budget Article Comments Christie Cites ‘Cadillac Tax’ In Push To Cut Public Employee Benefits

But if the Obamacare tax goes into effect as scheduled, it would add to New Jersey’s long-term fiscal crisis, which has been caused by sluggish economic growth, mounting debt, and huge unfunded liabilities for pensions and retiree healthcare. Furthermore, the “Cadillac tax” would hit school districts, municipalities, and counties harder than state government, adding to the state’s highest-in-the-nation property tax burden.

“Potentially, it’s a big problem, but very few people are aware of it,” said Lou Neely, chief financial officer in East Brunswick. “If you ask most mayors and human resource people today what they think about the Cadillac tax, they probably think you’re talking about a car.”

Christie’s on a public campaign to change that. For the governor, invoking the threat of the looming Cadillac tax is a centerpiece of the “No Pain, No Gain” roadshow he will take to Belmar today as part of a summer-long campaign to build public support for his forthcoming plan to cut public-employee pension and retiree health-benefit costs.

Christie asserted at a town hall meeting on Long Beach Island last week that the State of New Jersey pays $8,000 more for health insurance premiums for its workers than the average private employer in the state, and dismissed public employees and their unions as “special interests” who “don’t care what happens to anybody else” as long as they keep their “excessive” benefits.

“The president of the United States has said the health plan we give employees of the State of New Jersey is a Cadillac plan,” Christie declared. “It’s not the Republican governor of New Jersey saying it. It’s the Democratic president of the United States.”

The family health insurance and prescription drug plans in which most state employees are enrolled will be close to the $27,500 tax threshold by 2015 and will exceed it the following year based on current health inflation rates. Health and prescription coverage for most retirees who do not yet qualify for Medicare will top $30,000 next year, according to Aon Hewitt, the state’s health benefits consultant.

Christie made it sound like the $261 million in 2018 and the $837 million in 2022 would have to come out of the state budget, which has been plagued by a series of revenue shortfalls over the past three years, most recently a surprise deficit that emerged in April and forced Christie to cut $2.4 billion in promised pension payments. While a state judge upheld Christie’s $900 million pension payment cut for Fiscal Year 2014, the unions filed an updated lawsuit yesterday challenging the $1.5 billion FY15 cut.

The governor’s office and the Treasury Department failed to respond to repeated requests for an explanation of Christie’s numbers. But a New Jersey Spotlight analysis of projections issued this month by Aon Hewitt in its 2015 rate recommendations for the State Health Benefits Plan showed that school districts, municipalities, and counties would pay the lion’s share of the Cadillac tax.

Aon Hewitt projects that counties and municipalities enrolled in the State Health Benefits Plan, would pay a $97 million Obamacare tax on their 47,757 active employees and 27,590 retirees in 2018 -- a tax that Christie projects would grow to $312.7 million by 2022. School districts covered by the state plan would pay an estimated $80 million for the 96,697 current teachers in the plan in 2018 and $258 million by 2022 (these projections assume that two-thirds of Aon Hewitt’s projected tax for school employees in the State Health Benefits Plan would be levied on the policies of current teachers).

School districts and local governments offer more expensive plans than the state government. As a result, combined health insurance and prescription drug coverage in 2015 will already exceed $27,500 for most county, municipal, and school employees, with the cost of coverage for retirees who have not yet qualified for Medicare topping $36,500 under the most expensive plan. Most individual plans also will be above or close to the $10,200 cap that triggers the tax by next year.

When counties, municipalities, and school districts enrolled in private insurance plans -- which are often more expensive -- are included, those projections of $177 million in excise health insurance taxes falling on the backs of local property taxpayers in 2018 and $570 million in 2022 numbers could very well double.

The state government would pay a $43 million Cadillac tax for 96,560 state workers and 46,837state retirees in 2018, which Christie expects to rise to $130.5 million by 2022. The state, which also pays for the health benefits of 97,551 retired teachers, also would incur an estimated $40 million tax in 2018 and $129 million by 2022 for those retired educators who do not yet qualify for Medicare. (Medicare policies fall well below the Obamacare tax threshold.)

Union leaders say Christie’s dire warning is just the latest attack in a five-year campaign to demonize “greedy” government workers that he hopes will carry him into the White House in 2016. It is also yet another headache for union officials to deal with as they try to defend existing benefits in contract negotiations with Christie, mayors, school boards and county freeholders next year.

The most controversial part of the 2011 pension and health benefits overhaul pushed through by Christie and Senate President Stephen Sweeney (D-Gloucester) was not the suspension of cost-of-living increases for pensioners. It was the suspension of collective bargaining on health benefits for four years and the imposition of required contributions to health benefit premiums for every public employee in New Jersey on a sliding scale ranging from 3 percent for family coverage for those earning under $25,000 to 35 percent for those earning over $110,000.

That four-year suspension ends in 2015, and Christie will begin negotiating new contracts with the state’s unions in which he is expected to push for further cuts in health insurance policies. Counties, municipalities, and school districts also will begin negotiating new contracts with their unions as existing three- and four-year contracts expire, although the health premium payment schedule will remain in effect through 2016.

While Neely’s East Brunswick has held its health insurance costs below the State Health Benefits Plan, the Cadillac tax would have the biggest sticker shock in small towns like Surf City and Sea Isle City, where family health insurance plans for current and retired police officers from private insurers currently run $44,000, said Ray Caprio, director of the Local Government Policy Institute at Rutgers University’s Bloustein School of Planning and Public Policy. That $44,000 cost to local taxpayers would jump to $49,500 with the 40 percent Obamacare surcharge added.

Caprio and union leaders noted that the theory behind the Cadillac tax was not only that it would drive down health premium costs in collective bargaining, but also that it would push up wages as employers gave their workers pay hikes to make up for the higher out-of-pocket health care costs they would incur as a result of receiving less-inclusive healthcare policies.

In fact, of the $200 billion projected by the Obama administration to be generated over the first 10 years from the Cadillac tax provision, only $58 billion was expected to be paid in excise healthcare taxes, with the other $142 billion projected to be generated in the form of higher federal taxes paid on the wage increases workers were expected to get.

Because the Cadillac tax did not include any cost-of-living multiplier to account for the differences in healthcare costs among states, most of the tax was expected to be paid by high-cost states in the Northeast and along the Pacific Coast.

Furthermore, the Obama administration’s expectation that only $58 billion in tax penalties would be paid over a 10-year period raises questions about Christie’s projection that New Jersey state and local governments would pay out $2.5 billion in the first five years of the program just for enrollees in the State Health Benefits Plan.

Clearly, the Obama administration’s expectation was that public and private employers in New Jersey – like other states – would strive to drive down as many of their health insurance and prescription drug policies below the $10,200 individual and $27,500 family threshold.

Christie said he would introduce a comprehensive plan to cut pension and healthcare costs next month. “We have to pare back benefits,” Christie said last week. “There’s no other way to do it.” The governor added, “It will not be easy, it will be hard and it will hurt.”

Union leaders, however, said Christie should follow the lead of California and Massachusetts by pushing Horizon Blue Cross Blue Shield and Aetna, the State Health Benefits Plan’s health insurance providers, to lower their premiums.

Dudley Burdge, a staff representative for Communications Workers of America Local 1032, who serves as a union representative on the State Health Benefits Commission, questioned why annual increases in health premiums in the State Health Benefits Plan have averaged 7.8 percent for state workers and retirees and 8.2 percent for local governments and school districts over the past four years, while the California Public Employees Retirement System (CALPERS) rates increased an average of just 4.9 percent.

CALPERS, which is the third-largest purchaser of healthcare in the nation, behind only the federal government and General Motors, has done a better job of negotiating with its insurance providers than New Jersey, Burdge asserted.

“There’s a lot more that we should be doing to actually lower the costs of healthcare,” Burdge said. “All Christie wants to do is shift more of the costs onto the backs of public employees. He’s a ‘one-trick pony.’ That’s all he knows.”

Union experts also questioned the accuracy of the Christie administration’s cost projections, including how Aon Hewitt had calculated the annual increase in the Consumer Price Index by which the Cadillac tax threshold is allowed to grow each year, and the increase in the threshold of $1,659 for individual retirees and $3,450 for retiree families

While state officials did not respond to questions about the governor’s methodology, Christie’s $837 million estimate of the 2022 cost of the Cadillac tax to the State Health Benefits Plan was evidently extrapolated by extending Aon Hewitt’s projection of a 34 percent increase in the excise tax for local governments and school employees and 32 percent between 2018 and 2019 forward for another three years at the same rate.

In addition, union leaders questioned how Aon Hewitt could accurately project future costs when the Obama administration has yet to issue regulations required under the Affordable Care Act that would raise the threshold by an unspecified amount for employers whose workforce is older and more female than the national average -- a provision that would lower the projected tax for both New Jersey state government and the state’s school districts, although not for municipalities.

“If you’re a labor bargainer, there’s no way you’re going to agree to bargain over coverage until you know how the age/gender formula works,” said one union expert who asked not to be identified.

Do you like this post?

Be the first to comment