CalPERS Exploring Options To Avoid ACA’s Cadillac Tax


Employer and employee groups are urging the California Public Employees’ Retirement System (CalPERS) to explore options to avoid the Patient Protection and Affordable Care Act’s (ACA) excise tax on high-cost plans (also known as the Cadillac tax). CalPERS currently provides health benefits to more than 1.3 million public employees, retirees, and their families. A preliminary report on just two CalPERS plans shows the two high-cost plans would be penalized an estimated $3.9 million annually under the excise tax.

Cadillac tax. Under the ACA, the Cadillac tax will impose a nondeductible 40 percent excise tax on high cost health plans, beginning in 2018. The threshold amounts for the imposition of the tax are $10,200 for individual coverage and $27,500 for family coverage. The tax is applied to the amount of an employee’s benefit that exceeds the threshold.

Undertake all efforts. A recent staff report noted that CalPERS should “undertake all efforts” to lower costs and avoid the Cadillac tax. The report continued, “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.”

Some possible options being considered would be switching members from two Blue Shield and Anthem with broad provider networks to plans offered by the same organizations with narrower networks. Another option being considered is moving members onto a high-deductible health plan (HDHP). California’s governor has introduced a proposal that would give state workers the option of a low-cost HDHP. However, unions and retiree groups have denounced the HDHP because they require large out-of-pocket payments before insurance coverage begins.

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