Skip to content

CalPERS Could Owe Obamacare $770 Million in “Cadillac Tax’

SIGN UP FOR OUR NEWSLETTER

California government entities and their unions are panicking because Obamacare’s punitive 40% “Cadillac Tax” beginning in 2018 will directly hit the low-deductible and broad-provider network type of “platinum” healthcare coverage that public employees have enjoyed under the California Public Employee Retirement System (CalPERS).

With the Cadillac Tax estimated at $770 million, public employees face a radical change to “narrow networks” and up to 1,000 percent increase in annual healthcare deductibles.

California public employee unions and CalPERS took a leadership role in lobbying for the design, passage and regulatory implementation of “Obamacare,” officially known as Patient Protection and Affordable Care Act. According to a celebratory report titled, Compliance Accomplishments of the California Public Employees’ Retirement System (CalPERS) for the period from January 1, 2011, through July 30, 2012:

CalPERS also provided support to lawmakers, in the form of comments on regulations associated with federal healthcare and financial market reform. Additionally, staff provided executive support for the Pension Reform Dialogue and Joint Legislative Conference Committee Hearings and provided comments on regulations associated with federal healthcare.

However, Aetna CEO Mark Bertolini warned that three factors in Obamacare’s design essentially made inexpensive health insurance illegal: 1) Obamacare required that insurance on an actuarial basis cover at least 60% of healthcare costs. Previously, over half of Americans bought individual coverage below 50%. 2) Obamacare imposed 21 new taxes and fees that added 5% in additional costs. Aetna passed through over $1 billion of these taxes and fees to its policyholders last year. 3) Obamacare requires insurance companies to provide subsidized coverage to those already sick and provide coverage for such personal choice electives such as abortion and gender re-assignment.

A Kaiser Family Foundation study released in January reported that 48% of uninsured Americans say they will remain uninsured because Obamacare prices are too high. That also explains why the Kaiser Foundation estimates Obamacare will cost $2.6 trillion over the next 10 years, and why the U.S. Treasury Department estimates that 6 million Americans who lack healthcare coverage will be forced to pay the Obamacare tax penalty for 2014.

In a blowback against public employee unions, CalPERS is also subject to many of the 21 different taxes and other fees from the benefit it helped design and then pushed. The most devastating is the “Cadillac Tax,” which charges a 40% excise tax on health plans with annual premiums above $10,200 for individuals and $27,500 for families.

CalPERS foolishly predicted that Obamacare would cut healthcare costs and supported the Cadillac Tax as a way to reduce the growth of health care costs by prompting employers to cut coverage and offer more high-deductible plans. But instead of costs falling, healthcare costs are still rising 1 percent faster than inflation, and may accelerate.

An American Healthcare Policy report predicts about 38 percent of large employers, including CalPERS, will be hit by the Cadillac Tax in 2018. Due to healthcare inflation, the report predicts the average U.S. family health plan will pay a Cadillac Tax in 2031.

The actuarial projections produced for the California State Controller’s Office estimated the state’s unfunded healthcare liability as of December was $72 billion. However, healthcare cost inflation for “future retirees was increased by an additional 0.14 of a percentage point to 4.64 percent on and after 2025,” according to the Controller’s Actuarial Report.

CalPERS’ staff “preliminary cost report” estimates that if Obamacare’s Cadillac Tax had been effective in 2015, CalPERS’ Blue Shield PPO offered in the Bay Area would already be subject to a Cadillac Tax of $378.40 for an individual and $592.40 for a family. Anthem’s HMO for Sacramento would also be subject to a Cadillac Tax of $432.80 for an individual and $733.20 for a family.

The report warns, “While the tax does not take effect until 2018, we believe that immediate action is necessary to convey that CalPERS will do everything possible to help ensure that our plans are not subject to the tax.”

Given that CalPERS has about 1.4 million active and retired healthcare insureds, with an average Obamacare Cadillac Tax of $550 per insured, failure would mean that CalPERS would owe $770 million to the federal government if the tax obligation was effective in 2015.

The “preliminary report” suggests CalPERS could avoid Cadillac Taxes by switching its public employee insureds out of what Governor Brown calls “platinum” coverage featuring broad provider networks and deductibles of $500 per individual and $1,000 per family. CalPERS would then only offer so called “narrow networks” with few providers and deductibles that could be as high as $6,600 per person and $13,200 per family.

CalPERS’ Board took no action on the report, but directed staff to provide a full review of the potential Cadillac Tax costs and report back by September.

In sum: the Obamacare “deal” that public employee unions and CalPERS helped design and pass may be about to destroy the type of “platinum” healthcare coverage California public employees have enjoyed.


Comment count on this article reflects comments made on Breitbart.com and Facebook. Visit Breitbart's Facebook Page.