America’s freight railroads, when compared to other industries, provide far richer health care benefits to employees and their families and shoulder far more of the costs. These benefits will cost more than $2.6 billion in 2017, with the railroads paying about $2.3 billion of that cost. Their financial challenge is exacerbated by a slow-growth economy and lessening demand for freight rail services.
The Current Value of Health Care Coverage
A fundamental measure of the richness of health care benefits is their actuarial value.
A health care plan’s actuarial value is the percentage of total average costs for covered benefits that the plan will pay. The higher the actuarial value, the less patient cost-sharing the plan will have on average.
The railroad Plan, with an actuarial value of 93 percent on average, pays 93 percent of health care expenses, while the enrollees in the Plan pay seven percent through a combination of deductibles, copays and coinsurance.
As a point of comparison, the Affordable Care Act (“ACA”) created four tiers of health care plan value that established benchmarks to facilitate comparisons of plans. Plans are categorized as “bronze,” “silver,” “gold,” and “platinum” based upon their actuarial value. As the table below shows, the health care value provided by the railroad Plan exceeds even the most valuable “platinum” coverage tier under the ACA.
Moreover, because the Plan’s cost-sharing features such as deductibles, copays, and out-of-pocket maximums are currently fixed dollar amounts, the Plan’s actuarial value will tend to increase over time (as Plan costs rise but benefit features remain fixed).
As shown below, the Kaiser Family Foundation’s 2016 Employer Health Benefits Survey reaffirms the extraordinary value of the railroad Plan’s health care benefits.
So, too, does a comparison with the Federal Employee Health Benefits Program. The table below shows how the Program’s standard Blue Cross Blue Shield option available to U.S. government employees compares to the railroad Plan. From deductibles to out-of-pocket maximums for individuals and families, railroad employees pay a far lower share of the cost of their health care benefits than do employees covered by the very generous federal government plan.
Health Care Costs in Context
Between 2014 and 2017, the railroads’ cost per employee for health care coverage increased more than 30%. By virtually any measure, the current health care expenditures assumed by the railroads substantially exceed mainstream norms and pose long-term financial challenges. At the same time, the rich and generous benefits are in contrast to the relatively small contributions made by employees, as shown in these tables.
Affordable Care Act and the “Cadillac Tax”
To date, increased costs from health care reform have been borne entirely by the railroads – a burden that has cost them about $343 million through 2015. Cumulatively, it is estimated that the ACA will cost the railroad industry approximately $648 million between 2011 and 2018.
As early as 2020, additional ACA-related costs could arise, when the ACA’s so-called “Cadillac Tax” takes effect on high-cost employer health care plans such as the rail industry’s current Plan. The Cadillac Tax could eventually increase the cost for the Plan by hundreds of millions of dollars each year.
A Path Forward
As the data above makes clear, health care benefits for railroad employees are far more generous than typically provided under plans of large employers outside the railroad industry. Moreover, the cost to the railroads of maintaining these benefits is immense and growing while the employee share is actually decreasing. These facts serve as a harbinger for potentially crippling consequences if left unaddressed. Commonsense reforms to benefit design including copays, coinsurance, and deductibles along with employee contributions, provider networks and consumer-focused innovations (among others) can help bring the railroad health care programs and expenditures closer to mainstream norms while still providing exceptionally valuable benefits to employees.