Massachusetts municipalities that offer employees, retirees, and elected officials the most generous and costly health insurance plans will feel the squeeze of the new national health care law’s tax on “Cadillac’’ insurance plans.
A family health plan that costs more than $27,500 would be subject to a 40 percent tax on every dollar spent above that threshold. The tax, set to take effect in 2018, would be levied on insurers, who would probably pass it on to municipalities and other employers. A few cities and towns already have family plans that exceed $27,500, and many others are on track to surpass that level before the tax kicks in.
That means taxpayers in many communities could be facing thousands of dollars in additional costs for every employee, retired worker, and elected leader they cover, unless those communities move soon to scale back coverage, a change the law is designed to encourage.
“This could be extremely expensive,’’ said Geoffrey C. Beckwith, executive director of the Massachusetts Municipal Association, a lobbying group for cities and towns that has pushed for an overhaul of the municipal health care system. “In general, municipalities would fall into this tax because health care is very expensive in Massachusetts and the municipal plans are very generous.’’
Framingham has dozens of employees enrolled in two of its family plans at annual premiums of $40,475 or $39,150, far in excess of the threshold. For individual plans, the excise tax threshold is $10,200, and Framingham has scores of employees enrolled in plans with annual premiums of $16,275 or $14,500.
If the new tax were in effect today, Framingham would probably face an additional expense of $4,660 to $5,190 for every employee in the family plans, and $1,720 to $2,430 for each employee on an individual plan.
Waltham would also be liable for the excise tax because it offers a family plan with an annual premium of $30,415, almost $3,000 over the threshold.
And Lawrence, one of the poorest cities in the state, also exceeds the tax threshold by providing a family plan that costs $30,180, though the city may join the state’s Group Insurance Commission as part of its financial restructuring.
Many other cities are already close to the family plan threshold and on pace to exceed it by 2018 because of increases in health care costs, including Everett ($27,048 in annual premiums), Brockton ($25,776), Malden ($24,360), Newton ($23,844), Revere ($23,604), and Peabody ($23,466).
Under the federal bill, however, the thresholds set for 2018 could increase if medical inflation outpaces expectations.
The state Division of Health Care Finance and Policy estimates that 8,600 state residents would be subject to the tax, based on a recent survey of employers.
“The theory behind the tax is that you are taxing excessive benefits, benefits that go beyond what a typical plan offers,’’ said Robert W. Seifert, a health overhaul specialist at the University of Massachusetts Medical School’s Center for Health Law and Economics.
The tax would apply to health insurers, such as Blue Cross and Blue Shield of Massachusetts and Harvard Pilgrim Health Care. But the insurers would probably pass the additional cost to employers, including municipalities, Seifert said.
Asked about the tax, Blue Cross-Blue Shield, which provides insurance to many cities and towns, released a statement saying, “Before the tax is implemented in 2018, we will continue to find ways to ensure our continued commitment to offer high-quality health plans at cost-effective prices.’’
Health care plans offered by cities and towns typically have very low copayments and deductibles but very high premiums. Municipalities pay as much as 85 percent of those premiums.
The country’s major unions, including those representing public employees, fought hard to block or weaken the so-called Cadillac tax, saying it would penalize workers who gave up higher wages for richer benefits.
“It was the main issue our national union was concerned about,’’ said Brad Tenney, secretary treasurer of the Professional Fire Fighters of Massachusetts. “The concern was that some of our plans that are high value would be hit by this.’’
Tenney said union pressure on Congress produced an exception for law enforcement personnel, including firefighters, because of their dangerous duties. For them, the threshold for family plans to trigger the tax would be $30,950, and the individual threshold $11,850.
Ginger Esty, chairwoman of the Framingham Board of Selectmen, said firefighters and others must be willing to accept less generous health coverage for the town to avoid significant layoffs.
“The cost of health care already is extremely expensive,’’ she said. “And if we don’t get any relief from the unions, there’s only one thing we can do, and that is lay off workers.’’
But Pete DeVito, president of the 140-member Framingham Firefighters union, said although he is open to talking with town officials, he would continue to be protective of benefits.
“Everything we got, we got at the bargaining table,’’ DeVito said. “We don’t like this Cadillac tax because it would hit us. But we have confidence our national representatives will fight it off’’ by 2018.
On the local level, firefighters and other unionized workers in Framingham have already increased the share of the premium they pay from 10 percent to 13 percent, DeVito said.
Under state law, cities and towns cannot change the mechanics of the health care plans they offer — the amount employees pay in premiums and in copayments, for example — without union approval.Sean Murphy can be reached at email@example.com.