Legislative Pulse: Oregon

Published July 24, 2015

Editor’s Note: Rep. Julie Parrish is a member of the Oregon House of Representatives (R-Tualatin) who serves on the Human Services and Housing, Veterans, Emergency Preparedness, and Natural Resources Committees. Managing Editor Kenneth Artz discusses with Rep. Parrish the Obamacare “Cadillac tax” and the state’s budget problems.

Artz: What is the “Cadillac tax,” and how would it affect public employees in your state?

Parrish: The Cadillac tax is an excise tax on health care plans the federal government deems as being too generous. The tax goes into effect on January 1, 2018, and it will affect individual plans costing more than $10,200 and family plans costing more than $27,500. The tax is assessed on the insurance companies, who will most certainly pass the tax through to the [policy holder’s] employer, including public employers.

In a state such as Oregon, where public employee health care plans are very generous, public employers at all levels of government will likely be subject to this tax in 2018 if they do nothing.

Artz: What are some of the budget holes Oregon is already facing in the 2017–19 biennium and how does the Cadillac tax affect this problem?

Parrish: Oregon was already set to face significant budget holes in its 2017–19 biennium. In 2013, the legislature attempted to reform the Public Employees Retirement System (PERS) to help bring down the unfunded liability. The bulk of the reforms were deemed to be unconstitutional. Public employers, who avoided some of that liability for the past few years, will be faced with a huge payment in the next biennium, estimated to be close to a billion dollars.

As part of former Gov. John Kitzhaber’s (D) plan to get people health care access under the Affordable Care Act, Oregon expanded its Medicaid population. In 2017, the federal government will be reducing the amount of the federal match they’ll send our state to continue coverage for some 600,000 Oregonians. Oregon is already a donor state in that we send Uncle Sam $1 of federal income tax and get less than $1 back. So the loss of the Medicaid match will be significant. Next biennium, we’re also looking at the possibility of a budget hole of $1 billion or more for the Medicaid expansion we passed in 2011.

Now, overlay a new cost of a Cadillac tax on public employee health care costs. This could cost our state, at every level of government, millions of dollars in the form of a tax, but it also creates disparities in total compensation to public employees and will likely become a collective bargaining issue in the future.

Artz: Can you explain what your bill, House Bill 3564, does and how much it could save Oregon’s taxpayers?

Parrish: House Bill 3564 represents over a year of research into how public employers in our state can redesign public employee benefits. It recognizes employees based on their individual needs, rather than offering a one-size-fits-all health care plan some may not be using. HB 3564 allows a benefit contribution to the employee in the amount of the single cap set forth in the [Affordable Care Act]. It moves public employers away from being self-insured and into an exchange. It then gives the employee the choice of how to spend the benefit amount. The allocation could go to cover the cost of health care. Or for a family with health care through a spouse, the money could instead go to a pre-tax retirement account or into a flex spending account to pay for childcare.

The bill also has a savings mechanism in the legislation; half of the realized savings would be banked by the employer to pay for future health care [cost] increases. When the Affordable Care Act cost caps go up, the employer would increase the amount to the employee automatically. The rest of the savings could be used to pay down the Public Employee Retirement System liability or for other non-health care related collective bargaining.

In theory, the bill could not only cover quality health care and benefit options for employees but also help create long-term solvency in public employer budgets. This bill also has applicability for private employer benefits and self-insured private union plans as well.

Artz: What happens if Oregon is unable to avert the Cadillac tax?

Parrish: I believe if we don’t solve this issue by 2016, the tax is going to be unavoidable. Congress is offering no repeal. Its unwillingness to repeal this provision of the ACA stems from the Medicaid expansion being, in part, predicated on the ability to collect the Cadillac tax as a new revenue stream.

I believe 2016 is our drop-dead date, because our state would first need to pass legislation. In and of itself, that will be difficult. Then we would need to go through a public bid process, followed by an open-enrollment period for employees. Without swift legislative change, the timeline is almost too tight to make such a substantive change and roll that out to thousands of public employees across state government, which is composed of 197 school districts, 240 cities, 36 counties, and dozens of other governmental organizations.

Yet the cost of doing nothing could be astronomical and crippling to budgets already strapped for cash with no way to raise the revenue to pay for it. Oregon’s taxpayers shouldn’t have to be saddled with this cost, particularly when there is no new value being received by the employee or the constituencies those employees were hired to serve.

Kenneth Artz ([email protected]) is managing editor of Health Care News.