For years, the Hamilton County school system has used its generous health insurance plan as a recruiting tool, a way to make up for relatively lower teacher wages. And it was easy to sell. With low copayments and hospital visits at only $100, the plan offers nearly incomparable coverage.
Over the years, the benefits for teachers and other employees here have remained strong, far outpacing the value of other employers' plans. But the school system likely will trim some of its benefits as it works to come in line with rising costs and new health care reform regulations.
A new tax aimed at helping to fund the expansion of health care coverage and curb the overuse of medical care is directly targeting plans like the school system's -- with benefits that are deemed too rich.
And that is setting up potential for a sea change not only for the school system but other public agencies across the country that will likely look to trim benefits or increase cost sharing.
Dubbed the "Cadillac tax," the controversial new tax set to take effect in 2018 targets so-called "Cadillac" health plans with high overall costs and minimal cost sharing, with low to no deductibles. Such plans, critics say, encourage unnecessary medical care.
The school system's health maintenance plan has no deductible. MRIs, CTs, X-rays, blood work, prenatal and postnatal care are all free for in-network providers. A specialist visit runs $20, the outpatient copay for surgery is $50 and hospitalizations and emergency room visits are $100.
Its preferred provider plan requires a $450 deductible, then covers 90 percent of all costs. Employees on both plans pay $1,200 a year for the individual coverage.
"It's kind of unheard of," acknowledged Krista Torrance, employee benefits manager for the school system. "We've offered such a rich benefit for so long, and teachers know that is a selling point. They have come to expect it, and I don't blame them for that."
With higher teacher salaries just over the border in some North Georgia systems, school officials say the health plan is a longstanding recruiting advantage for the Hamilton County Schools system.
So how does Hamilton County's plan compare to others?
"It is one of the best and therefore one of the most costly of any other school system across the state," said Ed Adams, the county's risk consultant.
School officials say they haven't determined yet whether their plans technically meet the threshold for the Cadillac tax. But low- to no-deductible plans are what the tax targets, and benefits consultants have urged the schools to re-evaluate its offerings.
But even without the Affordable Care Act changing the rules, school officials say their plans will need some type of adjustment to cope with rising costs.
Last year, the school system's medical costs reached $53 million, with employees covering 20 percent of that cost. The system's plans cover more than 10,000 people, including 4,600 employees and their dependents.
After other local governments and private companies have slimmed down their employee health benefits in the face of higher costs, some Hamilton County school board members predict big changes for the school plan.
"We're kind of the last man standing," said school board member Jonathan Welch.
Too many unanswered questions over rising health insurance costs played a part in Welch's decision to vote against a teacher raise in September. He said the 3 percent raise approved was shortsighted because it was likely that teachers would see a reduction in benefits.
"If health costs and the costs of the plan keeps going up at the same rate it has," Welch said, "I think it's going to be unsustainable."
Under the Affordable Care Act, the school has already paid about $321,000 in new fees for reinsurance and a primary care rate increase -- along with expenses for additional health benefits now required by the law.
Board member Rhonda Thurman says the benefits should be cut or teachers need to pay more up front if the current health insurance plan is to survive.
"It's not so much salaries that have caused other cities and counties to go bankrupt -- it's the benefits," she said.
Thurman says employees have no incentive to shop around or use the health plan prudently. She would rather see teachers have a health savings account or a similar mechanism.
"If you don't use any of it at the end of the year, you can have it. But if you use it it's gone," Thurman said. "Give them a little incentive to be more fiscally responsible."
This year the school system increased payroll deduction for dependents' coverage and created a high-deductible plan. Torrance said the department is considering other options. It may increase costs for employees, limit how it covers spouses, change its plan design, or a combination, Torrance said.
"Honestly I'd rather not [take that route] because the plan really has attracted employees," Torrance said.
But the decisions facing the school system aren't unique.
"We're not any different than any other large employer across the country," said Adams. "As implementation continues, it's going to be more and more and more costs. The employer either starts spending more money to stay where they are, or they start sharing costs with employees or they start reducing benefits where they can."
Plans defined as "high cost" Cadillac plans under the law exceed a cost of $10,200 a year for an individual or $27,500 for a family. That includes full premiums along with contributions to health savings accounts or flexible spending.
In 2009, the total cost of the average family policy was $13,374, according to the Kaiser Family Foundation.
The formulas outlining the value of a plan are still unclear for self-insured employers like the school system, said Adams. It budgets at least $10,000 a year for individuals, but costs vary month to month.
Starting in 2018, employers over the threshold will pay 40 percent excise tax on the amount that exceeds that limit. If an individual's premium was $1,000 over the threshold, for example, $400 in taxes would be due for that plan.
Most of the time those premiums are driven by a rich plan, said Russ Blakely, a longtime Chattanooga broker who has been consulting with larger groups -- including Hamilton County government -- about the tax.
But not all plans with the "Cadillac" stamp offer great benefits, Blakely said.
Some plans with high premiums have a rocky claims history. The average age in the group may be higher, or members may be sicker.
The tax starts in 2018 and "a lot can change in five years," said Adams. He hopes federal officials will grant higher thresholds for plans with older and female workers, who tend to generate higher health costs.
But large employers worried about the tax are acting now, Blakely said.
"With health care costs up 6 to 8 to 10 percent a year, we just have a lot of groups who -- if they don't make changes soon -- will crash through the Cadillac threshold," Blakely said.
Hamilton County government has already readjusted to avoid the tax.
The County Commission voted this summer to restructure the county's employee health plan -- which was deemed a "Cadillac plan" -- moving from a co-pay plan to a coinsurance plan.
"Recognizing the changes that the Affordable Care Act was going to bring, and also the fact that we're trying to control costs -- it just made sense to put everyone on a more traditional plan," said Alecia Poe, the county's human resources director. "It was going to happen either way. At some point you have to make a change for Hamilton County to be good stewards of taxpayer dollars."
The City of Chattanooga's health plan does not meet the definition of a Cadillac plan, mayoral spokeswoman Lacie Stone said.
"We look at the design of our plan every year and there is always the possibility of minor changes, but it would not be to avoid excise taxes," Stone said.
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