Employers anticipating the Affordable Care Act’s Cadillac tax have already begun to adjust health care offerings and employee communications, benefit experts say, noting that current trends in the industry may prepare advisers to work with employer clients who have yet to make necessary adjustments.
The ACA’s high-cost plan tax, which takes effect in 2018, 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 tax is meant to raise revenue to fund coverage expansions under the health care law and to help contain health spending.
The Kaiser Family Foundation recently estimated an alarming 40% of employers could be subject to the tax by 2028, underscoring a need to make plan adjustments sooner rather than later.
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Employers have begun to eliminate a variety of services, cap health savings accounts and flexible spending accounts, and offer less-expensive provider networks, according to Greg Morano, chief executive officer of Univers, a benefit communications, enrollment and administration solutions provider.
Employer contributions to employees’ HSAs would be counted toward the valuation of the benefit for purposes of calculating whether an excise tax liability exists. Morano says while he’s seen an increase in capping defined contribution, it so far has not been to the level the industry may have predicted it would be.
Still, he says, “It’s a tool in the tool box,” that employers are using.
Earlier this year Paul Fronstin, director of the Health Research and Education Program for the Employee Benefit Research Institute, told EBA he predicts many employers who sponsor high deductible health plans will drop contributions to HSAs to minimize their exposure to the excise tax.
Employer options
Morano says he’s also seeing employers increasingly move toward offering high-deductible plans.
By making modifications now, employers can phase-in changes to avoid a bigger disruption later on. Some other things 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;
- 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).
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Morano says Univers has seen many clients “gradually reduce health plan options, eventually reducing options to one plan, typically a high deductible plan.”
In order to soften the transition, he said, these organizations have been offering contributions into the employee’s health savings account or health reimbursement account.
He said employers are also increasingly offering supplemental benefits to fill coverage gaps.
“We’re seeing an introduction of the critical illness and hospital indemnity plans and we’re doing more insurable risk communications,” he says.
Employers are also using strategies such as spousal surcharges to keep plan costs down. A third of employers (32%) are using spousal surcharges today, but that number is expected to almost double to 61% in the next three years, a Towers Watson 2015 emerging Trends in Health Care Survey shows.
More than half (53%) of the midsize to large employers surveyed by the brokerage say they plan to significantly reduce subsidies for spouses and dependents by 2018 and four in 10 employers say they may adopt a defined contribution arrangement by 2018.
Specialty Rx
Double-digit specialty pharmacy costs are another factor taking a toll on employers’ health care budgets and a majority (61%) of employers are adopting coverage and utilization restrictions in their specialty pharmacy strategy to address cost pressures, the Towers Watson survey shows.
More than a third of employers today are adopting a high-performance formulary that eliminates or reduces brand-name coverage or utilization in certain categories, with another 26% considering it by 2018.
Thirty percent of employers are also implementing coverage changes to influence site of care for specialty pharmacy and that number could increase to 67% of employers by 2018, Towers Watson says.
Four in 10 (41%) employers are evaluating and addressing specialty pharmacy spend within the medical benefit and another 42% will do so by 2018.
Hope for repeal
Many employers and benefit industry insiders are still hoping for a complete or partial repeal of the ACA’s excise tax and last week the House of Representatives passed the “Restoring Americans’ Healthcare Freedom Reconciliation Act,” (H.R. 3762) by a 240-189 vote. The legislation repeals the Cadillac tax in addition to repealing other concerning ACA provisions.
“This harmful tax will not only hit many of our small business members and their clients hard starting in 2018, but over time will impact more and more individuals because the tax threshold is tied to a very slow measure of inflation,” says Robert Rusbuldt, Big ’I’ president & CEO. “This snowball effect will do irreparable damage to the employee benefits marketplace. The Big ‘I’ fully supports repealing this destructive tax and looks forward to working with Congress in a bipartisan spirit to ensure this tax never sees the light of day.”
In addition to H.R. 3762, four other bills have been introduced this Congress to repeal the tax. H.R. 879, the “Ax the Tax on Middle Class Americans' Health Plans Act,” and H.R. 2050, the “Middle Class Health Benefits Tax Repeal Act” have been introduced in the House and S. 2045, the “Middle Class Health Benefits Tax Repeal Act” and S. 2075, the “American Worker Health Care Tax Relief Act.”
