Fear of 'Cadillac tax' on health plans forces Tacoma to act

Staff writerDecember 1, 2013 

All 3,500 city of Tacoma employees could see their health plans change under a tentative agreement that will go to the City Council this month.

Renegotiating health benefits with city unions was the No. 1 recommendation of the city’s Fiscal Sustainability Task Force that met for several months this year to study ways to close the city’s projected budget deficit.

Tacoma could face a $12 million penalty — or “Cadillac tax” — because its city worker health care plans are deemed too generous by the federal Affordable Care Act.

In 2018, the federal government will begin taxing 40 percent of the value of any employer health care plan that costs more than $10,200 for individual coverage or $27,500 for family coverage.

The value of the city’s current health care plans for employees with families is $23,000 to $25,000 a year, an amount that will likely increase by 2018. City workers pay less than 1 percent of the cost, the fiscal sustainability group’s report states.

The proposed one-year contract would increase workers’ out-of-pocket maximum to $1,500 for individuals and $3,000 for a family. In exchange, the city would pay 100 percent of the 2014 premium increase.

The agreement also enhances the city wellness program, which helps employees quit smoking, manage diabetes risk and encourages exercise, said Alice Phillips, business manager for IBEW Local 483, which represents about 950 city employees.

City Human Resources Director Joy St. Germain said the new plans would take effect Jan. 1, subject to City Council approval.

City labor negotiators began bargaining new health care benefits with the city’s Joint Labor Committee five months ago, long before the sustainability task force made its recommendations.

St. Germain said the negotiations are a good first step, but the changes don’t reduce the health plans enough to avoid the federal tax in five years.

“It’s a small impact,” St. Germain said. “There’s a lot more we are going to need to do to avoid the tax. Anything we do between now and 2018 is important.”

Phillips said city managers and joint labor will continue to talk once a week about health care benefits and contracts that expire in 2015.

“Everyone knows the escalating cost of health care is getting ridiculous for employers and employees alike,” Phillips said.


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