The number of employers who could be subject to the Affordable Care Act’s excise tax on high-cost health plans could be as high as one in four employers (26%) by 2018 when the tax goes into effect, unless changes are made to their existing health plans, according to new projections from the Kaiser Family Foundation. The Foundation’s estimates predict an alarming 40% of employers could be subject to the tax, dubbed the ‘Cadillac tax,’ by 2028, underscoring a need to make plan adjustments sooner rather than later.
The analysis estimates that the share of employers potentially affected by the tax could grow to 30% in 2023 and 42% in 2028 if their plans remain unchanged and health benefit costs increase at expected rates.
The ACA’s high-cost plan tax, which takes effect in 2018, was meant to raise revenue to fund coverage expansions under the health care law and to help contain health spending. It taxes plans at 40% of each employee’s health benefits that exceed certain cost thresholds: In the first year, the thresholds are $10,200 for self-only coverage and $27,500 for other than self-only coverage. The thresholds increase annually with inflation.
“The single biggest issue facing our members is the Cadillac tax,” John Abrams, co-director for the center for worker’s benefits and capital strategies of the research and strategic initiatives department of the American Federation of Teachers said earlier this year at an industry conference. “It’s a huge and complicated tax that we believe will significantly harm employer-provided insurance if it gets fully implemented in 2018.”
While his group is working in coalition with other groups to fight the tax, he encourages employers to understand what their premiums are today and project out what they will be in 2018 as an effort to figure out whether they need to make plan changes now or they can wait.
“We’ve told them they need to consider cost containment now,” he says, adding that he also encourages employers to embrace wellness.
Plan changes needed
By making modifications now, employers can phase-in changes to avoid a bigger disruption later on. Some of the things that employers can do to reduce costs under the tax, as suggested by the Kaiser Family Foundation, include:
- Increasing deductibles and other cost sharing;
- Eliminating covered services;
- Capping or eliminating tax-preferred savings accounts like FSAs, HSAs or HRAs;
- Eliminating higher-cost health insurance options;
- Using less expensive (often narrower) provider networks; or
- Offering benefits through a private exchange (which can use all of these tools to cap the value of plan choices to stay under the thresholds).
Many plan sponsors and their advisers will first turn to reducing the medical plan design value, because it’s simple and effective, says Daniel Gowen, senior vice president and an employee benefits national practice leader for Wells Fargo Insurance Services USA. Employers need to be careful that they don’t reduce the plan design benefits to levels that are too low, however, he says. Otherwise, they risk dropping the plan design below the 60% actuarial minimum value standard applicable under the ACA’s employer play-or-pay mandate.
Gowen says his firm has seen an ongoing trend where employers do not allow employees to elect spousal coverage if their spouses are eligible for benefits elsewhere. A softer approach may be to impose a spousal surcharge, which might discourage the enrollment of spouses.
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