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Challenges of Budgeting for Health Insurance Costs

The Patient Protection and Affordable Care Act (PPACA) creates budget concerns for government employers and fire departments as well as challenges for employer-provided health insurance plans. President Obama declared that once the PPACA was passed, Americans would see an annual savings of $2,500 on the health insurance premiums.

Today, however, some fire departments are seeing substantial cost increases. Some experts project a possibility that costs will further increase in 2015, when the next phase of the PPACA is implemented. Fire chiefs should monitor this situation and keep these potential impacts in mind when budgeting for future years.

For the most part, labor has in the past negotiated relatively high-quality health insurance plans for firefighters and retirees. These insurance plans have become a staple for firefighter benefit plans throughout the nation.

The state insurance exchanges created by the PPACA are scheduled to go operational in January 2014 and may impact employer-provided health insurance plans. Four different plans will be offered through these exchanges; the high-end plan will cover 90% of qualifying medical expenses and the low-end plan which will cover 60% of qualifying medical expenses.

The state exchanges will offer lower-cost insurance through government subsidies based on income levels. For example, a family of four with an annual income starting at $31,322 will be eligible to enroll in an exchange plan. At this base income level, the insurance will carry a monthly premium of roughly $100. The amount of subsidy decreases on a sliding scale as household income rises.

Subsidies will end at a household income of $94,200, where the monthly premium is projected to be less than $1,000. Nearly all firefighters will fall within the above income range of $31,322 to $94,200.

In some cases, this competition may lead to a decrease in premiums for private- and employer-provided health insurance plans. However, in other cases, some insurance companies may choose not to compete with the exchanges and leave the market, thus eliminating plans that some localities have historically offered their personnel.

Employers are also weighing the cost of providing insurance for their employees versus accepting fines. As mentioned in July's article, Affordable Care Act Causing Concern for Fire Departments, the PPACA requires employers with 50 or more full-time employees or the equivalent to provide qualified health insurance or face a $166 per-month, per-employee fine. This fine will generally be well below the cost of the employee's health insurance.

Some elected officials may find that the exchanges offer a very attractive bargain and aggressively negotiate a labor contract that moves health-insurance coverage to an insurance plan from a government exchange in order to save money. Alternatively, some cities and counties may chose to drop their insurance coverage and increase wages to allow firefighters to pursue insurance from a state exchange. In the worst case, employers may drop health insurance altogether and pay the fine, leaving firefighters to obtain insurance on their own.

These options present direct challenges to labor-negotiated health benefits.

Could employer-provided health insurance for public employees be transferred to an insurance package from a state exchange? Well, it's already happening in some places. Revenue-strapped jurisdictions like Detroit, Chicago and Sheboygan County, Wis., are discussing transferring retiree health insurance to the exchanges.

The search for lower-cost plans will always be tempting for local government leaders. Once the transition to state exchanges begins in some communities, it may have ripple effects across the nation.

The PPACA will likely have another unintended consequence for fire department budgets. In 2018, a 40% tax, informally known as the "Cadillac tax," will be placed on high-benefit plans. For most people, the cut-off for defining these high-benefit plans will be $10,200 for individuals and $27,500 for a family.

However, the PPACA creates a higher cut-off limit for health-insurance plans for retirees and employees in high-risk occupations, such as firefighters. For these individuals, the limit will be raised to $11,850 for individuals and $30,950 for a family. Many health insurance plans offered to firefighters today may fall under the high-benefits plan category and be subject to the 40% Cadillac Tax.

The additional tax on these plans will be absorbed into the premium and passed on to the purchaser. Ultimately, current insurance plans for firefighters may be placed in a perilous position since many cities and counties may have difficulty affording the additional costs associated with high-benefit plans.

The bottom line is that the communities offering employer-provided insurance to firefighters may have difficulty continuing to offer their current insurance plans due to potentially higher costs for these plans. Fire chiefs should make sure to consult their benefits administrators and other local government officials to assess how the PPACA may impact plans currently offered to firefighters.

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