There is something fishy about the entire set of reporting of the Cadillac tax drove Harvard University to institute deductibles and co-pays for their employee health plan.
The numbers don’t add up.
Harvard University’s HR department has the full cost of health insurance at their website. Their most expensive policy for the year has a bi-weekly paycheck total cost of $261.23 for an individual or $707.08 per paycheck for family coverage. That works out to be $6,792 per year for a single person and $18,384 for family coverage. The employee has roughly an 18% to 20% payroll deduction, and the university pays everything else behind the scenes.
The Cadillac tax does not start until 2018. It applies a 40% excise tax on all premium dollars above $10,200 for single coverage or $27,500 for family coverage.
Harvard is not even close to meeting those thresholds. If we give a 5% growth rate to premiums, Harvard would breach those caps in 2023 if those caps were stable. However the threshold levels grow at inflation plus one percent for the first two years, and then the inflation rate. Using the same 5% growth rate, and a 2% inflation rate, Harvard does not breach the caps until 2026. Performing a sensitivity analysis and reducing the insurance premium growth rate to 4.5% pushes out the first excise tax dollar until 2029. Bumping inflation to 2.5% and growth rate to 5%, also pushes the first Cadillac tax payment until 2029. And remember, these dates are for the most expensive plans currently offered by Harvard. The cheaper plans would not run into Cadillac tax territory until well after my toddler son has finished pranking that other school in Cambridge.
How many businesses institute unpopular human resources changes solely to avoid taxes half a generation or more into the future versus seeing immediate reductions in current expenditures?
My bet is Harvard was looking to minimize its health insurance costs, decided to offer a very rich but slightly less rich benefit package, and blame Obamacare and hope no one of any importance or influence does the math. That’s what I would do if I was the Assistant Dean of Paperclips given the charge to reduce total compensation costs by X percent.