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How a tax on health plans may lead to higher wages

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School is starting around the country this week. But as the doors open, teachers in Minnesota, New York and elsewhere are in contract negotiations, and health benefits are on the table. 

School districts are reluctant to be on the hook for the so-called Cadillac Tax, a provision under Obamacare that penalizes health insurance plans that are considered too generous, or expensive. It begins in 2018.

Just last week, a school district in Connecticut reached a new four-year deal with workers, higher wages, and higher healthcare costs. These sorts of school contracts may prove to be the first glimmer of an emerging trend in public and private sectors.

“Most Americans are going to face higher deductibles and higher co-pays. If they don’t we have consumption that we can’t afford,” says Leemore Dafny of Northwestern’s Kellogg School of Management.

She says you can think of the Cadillac Tax as a sort of forced diet for health spending. That’s part of why the basic idea is so controversial.

Nobody likes to be told “no,” especially when it means forking over more money for important medical care. Vanderbilt’s Melinda Buntin says research shows more expensive healthcare means we be buy less of it, but it’s risky.

“In truth, the results are not heartening,” she says. “Generally when people are faced with higher cost sharing, they use less care. But they are not great at ferreting out what is high value versus low value care.”

Buntin says she hopes the Cadillac Tax forces employers to push back on annual insurance premium increases and demand a better product.

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