Federal Workers’ Most Popular Health Plan Will Be Hit Hard by Senate Excise Tax

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The U.S. Senate health care bill would impose a 40 percent excise tax on employer-provided health care plans exceeding a certain price. The Federal Employees Health Benefit Plan’s Blue Cross/Blue Shield Standard plan is one of many FEHBP plans that will be significantly affected by the tax. To avoid the tax, BC/BS will have to cut benefits or else sharply increase the costs paid by federal employees.

About 48 percent of federal workers are enrolled in the BC/BS Standard plan. This represents 1.3 million enrollees and 2.8 million covered lives.

The excise tax would be assessed on the value of health care plans that exceeds $23,000 for a family and $8,500 for an individual starting in 2013. These “thresholds” would increase annually at the rate of general inflation plus one percentage point — roughly 3 percent a year. This is far below the 8.6 percent to 9 percent rate of increase that the BC/BS Standard plans averaged over the last 11 years.

If the cost of this plan continues to rise 9 percent a year, federal employees will get clobbered by the excise tax. At that inflation rate, the cost of the excise tax over 10 years for each worker in the BC/BS Standard plan, including average dental and vision coverage, will be

• $20,400 per worker in the family plan, or $2,040 a year.
• $16,400 per worker in the single plan, or $1,640 a year.

The BC/BS Standard plan is touted as the type of plan that will not be taxed under the Senate bill. That’s because it is not considered a “Cadillac” plan — the supposed target of this tax. It is more like a Chevy — it provides basic coverage, but participants bear significant costs. For example, federal employees pay about 30 percent of the premium and there is a relatively high out-of-pocket maximum of $7,000 in the family plan.

The excise tax is projected to raise about $150 billion over 10 years. There are far better ways to pay for health care reform than to tax the middle class. Health reform legislation approved by the House of Representatives (H.R. 3962) would require most employers to provide coverage raising $135 billion over 10 years, according to the Congressional Budget Office. And the wealthy are asked to pay their fair share too, with a surcharge on the top 0.3 percent of taxpayers that raises $460 billion.