The Affordable Care Acts excise tax on high cost health plans doesnt go into effect for several years, but employers have already begun to worry about it. Benefit advisers should be armed with options and ideas to calm their fears.
Beginning in 2018, a 40% excise tax will be imposed on high-cost health care plans that exceed a certain threshold $10,200 for individual coverage and $27,500 for family coverage. More than a third of employers (40%) now say they expect the so-called Cadillac tax to affect at least one of their current health plans in 2018 and 14% expect it to immediately impact the majority of their current health benefit plans, according to a new Aon Hewitt employer survey.
In fact, Barry Fields, vice president of employee benefits with the Holmdel, New Jersey-based agency Jacobson Goldfarb Scott Insurance, says employer fear may not be unwarranted, agreeing that a significant percentage of employers will be subject to the excise tax.
You could make the case that the excise tax is going to have a greater impact on employer-sponsored health plans than any other ACA initiative, including the employer mandate, he says. The majority of employers offer coverage that is both affordable and provides minimum value and the excise tax is going to have a significant potentially negative impact on those programs and those employees that are enrolled in these programs.
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Advisers, he says, need to be prepared to discuss the tax with their employer clients and be offering solutions. It may be three to four years away, but the reality is you need to start preparing now, he adds.
Fields says he has done an excise tax analysis with all of his clients, including projections for plan costs at several different rate increases for every year from now until 2018. Based on those projections, he and the employer can strategize how to keep the plan from being taxed; including renewal negotiations, benefit changes, carrier options, etc.
Benefit changes
Of those employers that told Aon Hewitt they expect the excise tax to impact their plans, 62% say they are making significant changes to their health plans for 2015, including:
- One-third (33%) are reducing the richness of their plan designs through higher out-of-pocket costs, including 10% that say they will eliminate high-cost, rich design options
- 31% are increasing the use of wellness incentives in their plans
- 14% are evaluating private exchange options for pre- and post-65 retirees, while 7% are considering private exchanges for active employees
- 14% are significantly reducing spousal eligibility or subsidies through mandates or surcharges
- 5% are implementing narrow/high performance provider networks
While the excise tax provision of the Affordable Care Act doesn't go into effect until 2018, it is accelerating the pace of change for U.S. employers, says Jim Winkler, chief innovation officer for Aon Hewitt's health business. Over the next few years, employers expect to use both traditional and innovative tactics to make substantive changes to their health plans to minimize their exposure to the tax and put them on a path to lower rates of health care cost increases.
Although not always directly related to the excise tax, Fields agrees he sees employers making changes to their benefit plans that will naturally benefit the excise tax situation by proactively managing their benefits now, including wellness changes, product changes, spousal surcharges, and other innovative offerings.
Repeal
Many employers and advisers, Fields says, are still hoping for the excise tax to be repealed and he believes theres a chance it still could be. Aon Hewitt's survey revealed that an overwhelming majority of employers (88%) favor repeal of the excise tax.
Were still hoping its repealed or the government increases the thresholds to a much higher amount, but we cant expect that to happen, Fields says, adding that advisers and employers should proceed to plan for the tax as if it wont be repealed.
