Massages May End With Tax on High-End Health Plans

Charlie Morlock of Cary, North Carolina, didn’t appreciate his company’s health-care coverage until his 5-year-old son was diagnosed with leukemia.

“When I take my son in for treatment there’s no co-pay,” said the 50-year-old program manager at SAS Institute Inc., the world’s largest closely held software company. “Everything is covered.”

So-called Cadillac health plans such as Morlock’s generally have lower deductibles, fewer out-of-pocket expenses, a wider choice of doctors and may cover multiple visits to therapists, chiropractors, acupuncturists or massage therapists, said Amir Mostafaie, a consumer health-insurance expert with eHealth Inc., based in Mountain View, California. Employers such as SAS say the plans can be a recruiting tool and increase productivity.

The cost to U.S. companies of providing that level of coverage may soon soar. The Senate Finance Committee is debating a bill that would impose a 40 percent levy on high-cost plans. That may prompt employers to cut back on benefits, said Ana Gupte, an insurance analyst at Sanford C. Bernstein & Co. in New York.

“These plans will be phased out in response to any such legislation,” Gupte wrote in a Sept. 16 research note.

Committee Chairman Max Baucus yesterday proposed a 40 percent excise tax on employer-sponsored health insurance that exceeds $8,000 in annual premiums for an individual or $21,000 for family coverage. Baucus, a Montana Democrat, said the tax would raise an estimated $205 billion over the next decade. The threshold for some early retirees and workers in high-risk industries such as coal mining or firefighting would be $8,750 for individuals and $23,000 for families.

Exceeding the Threshold

The Center on Budget and Policy Priorities estimates that about 10 percent of employer-sponsored health plans may exceed the threshold in 2013, the first year of the tax, said Paul Van de Water, a senior fellow at the Washington-based center. The Baucus plan’s cap combines the value of medical, dental and vision premiums, and other supplementary coverage provided by group or self-insured health plans. The tax would be applied to the premium over the threshold.

“That’s going to be pushed back on the consumers,” said Chris Curran, a spokesman for Philadelphia-based Cigna Corp., increasing employees’ out-of-pocket expenses for such plans.

Qualcomm Inc., the world’s largest maker of mobile-phone chips, and SAS offer employees health centers at their headquarters that provide physical therapy, nutritional counseling and health coaches. Health care is free at Cary, North Carolina-based SAS’s on-site center. Workers at San Diego- based Qualcomm pay $10 for all services in the health center. Both companies declined to disclose their coverage costs.

Massage Treatments

At SAS, where Morlock works, the health plan covers massage treatments, acupuncture, chiropractic sessions, mental health counseling and up to 80 physical or occupational therapy visits a year, said Jim Davis, SAS’s chief marketing officer and senior vice president.

“The health-care benefits we provide help us not only attract talent but retain talent,” Davis said. “Employees are healthier and more productive.”

Morlock’s son, now age 7, is doing “exceptionally well,” his father said. “I think there’s room for improvement in our health-care system, but I’d hate to see the bar slide the wrong way.”

NuStar Energy LP, a petroleum pipeline and asphalt refinery firm based in San Antonio, offers employees a “premium plan” with no deductible, whose costs with dental and flexible spending would reach the threshold. Under its plan, employees can see any specialist without referral and receive orthodontic work at any age, said Melanie Sinai, NuStar’s manager of benefits.

Union Benefits

Almost half of employers with high-cost plans and more than 500 employees are unionized, according to a survey of 3,000 businesses conducted by Mercer Inc., a human resources consulting firm based in New York.

“Unions traditionally negotiate generous health coverage for their members,” said Beth Umland, director of research for health and benefits for Mercer. “Heavily unionized workforces tend to be older than average, which would also drive up the cost.”

Self-insured companies like Qualcomm and SAS pay their employee’s medical claims out-of-pocket and use an insurer to handle administrative work. The Baucus bill taxes the plan administrator. The value for a self-insured plan would be the same as a former employee’s premium for insurance through Cobra, the program which covers workers who leave their jobs for as long as 18 months, said Van de Water of the Center on Budget and Policy Priorities.

About 55 percent of workers with employer-sponsored health insurance were covered by a self-insured plan in 2008, according to the Washington-based Employee Benefit Research Institute.

Meaningful Coverage

“Most of the time, the high premium replaces co-pays that would make the employee more aware of the cost of medical care,” said Erin Shields, Senate Finance Committee press secretary. “The high-cost premium tax will force insurance companies to compete to offer meaningful coverage that doesn’t encourage over utilization in the health-care system.”

The tax threshold would be indexed to inflation plus 1 percent. The average cost of employer-sponsored health insurance for a U.S. family rose 5 percent this year to $13,375, while inflation declined 0.7 percent, according to a survey released Sept. 15 by the Henry J. Kaiser Family Foundation, based in Menlo Park, California. The average family premium would be almost $31,000 annually by 2019 if premiums increase at the same average rate as in the past decade, said Kaiser’s Chief Executive Officer Drew Altman.

“That’s not a Cadillac plan, that would be the average family premium,” Altman said.