PEBB Approves Rate Restructure to Avoid $10 Million Excise Tax in 2018

Public employees will be spared any blow to their benefits or premium costs under a plan by PEBB to restructure their premium ratio between individuals and families, and subsidize employees with families who would pay more. These accounting moves will help the board avoid any hard decisions about paying the Cadillac Tax or cutting benefits. The board also authorized PEBB staff to settle its lawsuit with families of autistic children.

The Public Employees Benefit Board moved unanimously Tuesday to adopt a long-discussed strategy that will allow PEBB to avoid at least $10 million in federal excise taxes in 2018, all the while resulting in no change to health benefits or premium costs for public employees.

PEBB is able to take advantage of a quirk in the excise tax rules in the Affordable Care Act that allows it to avoid the tax simply by restructuring its premium levels to require coverage of spouses and dependents to better reflect the actual cost of providing coverage. Previously, the structure has meant that individuals slightly subsidize the non-employees who are covered by PEBB.

“The state of Oregon has long had a family-friendly rate structure,” explained PEBB administrator Kathy Loretz.

The new structure would mean that employees with families would have to pay as much as $19 more per month in 2018, but in May, the PEBB board voted to budget $5.9 million from reserves over the next two years to offset this cost, which means employees will only have their premiums increased because of inflation.

That offset was approved before the board actually voted for the restructure so that labor negotiators and the Department of Administrative Services would be sure to account for it when insurance deductions are made to payroll, said PEBB Chairman Paul McKenna, the research director for Service Employees International Union Local 503. “That made this process a lot more complicated,” he said.  

PEBB has been weighing a restructure of premium rates since the spring of 2014. Effectively, through a series of accounting gimmicks, the tax is avoided. If public employees see any difference, it will be a positive one.

Employees only pay 1 to 5 percent of their premiums -- currently $59 a month for the Providence statewide health plan for a single person; $80 for an employee and spouse; $68 for an employee and children; or $81 for the whole family.

Under the plan, in 2018, premiums for single people will be reduced to $41 a month; while inflation will cause rates to rise to $82 for an employee and partner; $70 for employee and children or $91 for a family. Employees can get lower premiums if they choose one of the coordinated care offerings from All-Care Health Plan, Moda Health or Providence Choice.

After 2018, PEBB is expected to begin reducing its special subsidy for families and make these employees pay for the higher cost of covering dependents. No action was taken, but one likely scenario has PEBB phasing the costs to these employees gradually over three years.

The federal excise tax -- also known pejoratively as the “Cadillac tax” -- takes effect in 2018 and requires employers to pay a 40 percent tax on any health plans that cost more than what the federal government has deemed necessary -- $10,200 for an individual or $27,500 for a family plan, adjusted annually to the consumer price index. PEBB is able to make the painless maneuver because its costs are actually below that threshold, but its family plan structure had premium levels shifted too much onto the individual.

The Oregon Educators Benefit Board will not be so lucky, and its consultants have informed OEBB that school districts are almost certain to pay some tax, although OEBB is working on keeping that tax below $1 million a year.

If PEBB had not implemented this actuarial restructuring, it would likely be on the hook for $118 million to $335 million in taxes through 2027. The amount varies because of differences in projections of cost inflation and a discount PEBB expects to receive from the Internal Revenue Service for having a disproportionate number of older employees.

  • In other business, the board approved $90,000 for a diabetes prevention program through Providence Health Plan and $78,000 for a similar program through Kaiser Permanente. Curiously, All-Care Health Plan already includes the same diabetes program as Providence in its premium at no extra cost to PEBB.

The board also authorized $40,000 for a “mindfulness-based resilience training” for correction officers, whose high-stressed job makes them more vulnerable to mental health challenges and alcohol abuse.

The resilience training is a proactive psychological approach to help brace prison workers or first responders from the pressures of the job before negative health impacts occur.

  • The board came out of executive session at the end of its meeting to announce that PEBB staff would mediate a settlement this week with the families of autistic children who paid for autism treatment in cash after PEBB denied their claims. PEBB now covers autism treatment outright, but the families have argued that PEBB should always have paid their claims under the Oregon Mental Health Parity Act.
  • The medical-loss ratio for the self-insured PEBB plan through Providence hit 96 percent, the highest level since 2011, up from 89 percent in 2013. This means only 4 percent of the premium is left over after claims and administration have been paid.

Per-member costs for PEBB have risen 6.5 percent from $1,120 per month in 2013 to $1,193 per month in 2015, even as premium levels have been reduced 1.7 percent from $1,262 per month to $1,241 per month in that time frame, leaving less of a cushion.

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