PEBB Can Avoid Federal Excise Tax without Cutting Benefits

If PEBB does nothing, the state will be hit with a $24 million tax in 2018, but by simply reweighting the premiums offered to families versus individuals, the tax could be avoided for several more years. Under this plan, families would pay a little more, but individuals would pay a little less.
If the Public Employees’ Benefit Board does nothing, the state will be hit with a $24 million federal excise tax on the value of its premiums in 2018, a number that could balloon to $116 million annually by 2030.
“For most people, if you don’t hit it in 2018, you’ll hit it eventually,” said Emery Chen, an actuary with Mercer, the actuarial consulting firm with an office in Portland, speaking to the PEBB board last week.
The excise tax seems daunting, but a closer analysis reveals that PEBB could push off the changes with some minor adjustments for a decade, and if it succeeds with the cost containment measures it’s been asked to implement, the state could put off paying the excise tax indefinitely.
With just some restructuring of how the money for the plans is divided between individuals and families, PEBB could avoid any tax until 2024. Further adjustments would kick the tax out to 2030, according to an analysis by Mercer.
Under this plan, public employees with family plans would have to pay more each month on their premium, but individuals would initially pay less, Paul McKenna, a PEBB board member, told The Lund Report.
“PEBB has wanted to be family friendly,” McKenna said, but without the change, “We’ll be paying lots of money to the feds for nothing.”
McKenna has served on PEBB for 11 years and works as a research director for the Service Employees International Union. He said that historically, the way PEBB structured these plans had no real effect on the employees, since they only recently started paying 5 percent of the premium. 
The excise tax is part of the Affordable Care Act, which hits individual plans worth more than $10,200 and family plans worth more than $27,500 with an excise tax that helps pay for the expansion in Medicaid and insurance subsidies on the individual market.
The tax has motivated some employers to scale back their health plans, and angered unions across the country that advocated for the law’s passage but now find themselves risking the health benefits they bargained for.
PEBB already exceeds the threshold for individual employees, but falls far short of it for its family plans. By simply increasing this ratio to one more in line with what other major employers offer, PEBB can avoid the tax.
The state can also ask for an adjustment to the threshold, since the average public employee is five years older than the average worker, and therefore would have higher health costs. 
These measures would together delay the tax for 12 years. Mercer’s projections also assume 6 percent inflation every year. That increase will not be possible if PEBB stays within the caps placed by the Legislature, which limited medical growth to about 4 percent a year.
PEBB Chairman Sean Kolmer said the board will likely wait until next summer before it makes any of the recommended changes from Mercer. With an RFP underway and a new contract in the offing, the board will have its hands full. A possible excise tax is still five years out.
But McKenna supported Mercer’s suggestions and said PEBB would not be able to put off making the changes forever.
“Waiting till 2017 is probably not a good idea,” he said.
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