Unions say Senate health bill tax provisions would ‘devastate’ FEHBP

Leaders of federal employee unions are stepping up their campaign against certain taxes and fees in the health care reform bill under debate in the Senate, claiming the provisions could "devastate" the Federal Employees Health Benefits Program.

Citing new reports from the Association of Federal Health Organizations and Communication Workers of America, a union that represents some federal employees, labor officials said during a press conference on Tuesday that the bill's excise tax on Cadillac plans and additional fees it imposes on insurers based on their share of the market will hurt FEHBP. Though the fees and the 40 percent tax on plans that cost more than $8,500 for individuals and $23,000 for families would apply to insurers, employee advocates said the companies likely will pass along the costs to enrollees in the form of higher premiums or less generous benefits.

"Clearly there will be major cuts in benefits to reduce the cost of the plan," said John Gage, president of the American Federation of Government Employees. "And there will be a major shift of many health costs onto the backs of workers."

Union officials said they would fight to ensure the final legislation's revenue collection provisions are closer to those in the House measure, which would fund reforms through a surtax on high-income individuals.

"Imposing an excise tax is not an equitable means of financing reform," said William Burris, president of the American Postal Workers Union.

The CWA report said the benefits offered in the Blue Cross Blue Shield Standard plan, FEHBP's most popular option with 3.8 million enrollees, likely are generous enough that they would meet the threshold for the excise tax. According to the report, Blue Cross would end up paying a total annual excise tax of $2,040 per single enrollee and $1,640 per family from 2013 to 2022. These calculations include dental and vision coverage and assume premiums continue to increase as currently projected.

Critics claimed much of that total ultimately would come out of enrollees' pocketbooks. "A lot of folks will either pay for it themselves, so they'll be poorer, or they won't get the care they need, so it will cost the system more later," said Frank Clemente, a researcher with CWA.

CWA's report didn't include the expected taxes for other FEHBP plans. But the study by AFHO said if the excise tax went into effect in 2013, then 16 to 26 plans under FEHBP would qualify. The report added that the separate insurers' fees could result in additional annual premium increases of $103.33 to $159 per contract. Those costs probably would be shared between enrollees and the government, the report stated.

A health benefits specialist, however, argued during an interview after the press conference that premiums could decrease as insurers are forced to cut waste and unnecessary spending to keep benefits below the threshold for the excise tax.

"Premiums will be more or less, dollar for dollar, lower than they would have been," said Walton Francis, author of the Consumers' Checkbook 2010 Guide to Health Plans for Federal Employees.

A November Congressional Budget Office report on the bill's effects on insurance options nationwide concluded: "Most employers would probably respond to the tax by offering policies with premiums at or below the threshold. Plans could achieve lower premiums through some combination of greater cost sharing (which would lower premiums directly and also lower them indirectly by leading to less use of medical services), more stringent benefit management or coverage of fewer services."

The report estimated that in 2016, 19 percent of all employment-based policies in the United States would be affected by the excise tax. But CBO also estimated those insurers would end up reducing their premiums by 9 percent to 12 percent in response to the tax.