Slideshow 5 things advisers should know about Cadillac tax preparation

  • February 17 2016, 8:43am EST
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5 things advisers should know about Cadillac tax prep

Although Congress has delayed the ACA’s Cadillac tax for two years and many are hoping for its complete repeal, advisers and their employers should still be preparing for its impending arrival, experts agree. The tax, originally set to go into effect in 2018, places a 40% levy on high-cost employer-sponsored health plans ($10,200 for individuals, $27,500 for families). Here are five things to know about the tax, according to Brad Wolfsen, senior vice president of bswift.

1) The tax is still part of the law.

The delay is a big win for employers, for sure, Wolfsen says, adding that it’s important to note that none of the major presidential candidates support the Cadillac tax. However, until it’s repealed altogether, employers should stay tuned and continue to draw plan designs accordingly so they can be ready to comply, he says.

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2) The delay doesn’t modify the Cadillac tax inflation-rate cap.

That cap is still in place and increases at the average inflation rate—not the health care inflation rate. So, if the tax is ultimately implemented, more employer plans will be affected in 2020 than would have been in 2018. Employers who execute plans now to avoid the tax will benefit from an additional two years of lower health plan costs, Wolfsen says.

3) There are concrete steps employers can take to reduce potential Cadillac tax exposure.

There are several ways employers can lessen the bite of the Cadillac tax and mitigate the growth in health plan costs—most notably, modifying plan designs to increase consumerism and reduce costs. Consumer-driven plans have a track record of slowing cost trends by increasing employees’ engagement in their health and health-care purchasing decisions.

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4) Emerging strategies can reduce inefficiencies, in addition to costs.

Delaying the Cadillac tax gives employers valuable breathing room to consider shifting toward tiered networks that reward employees for selecting higher-quality and more cost-efficient providers. For example, leveraging accountable care organizations (ACOs) is a newer approach to improving quality of care while containing costs, similar to the more familiar strategy of promoting Centers of Excellence, Wolfsen says.

5) Helping employees help themselves has the longest shelf life and arguably the best outcomes.

This two-year delay offers the gift of time to better educate employees about choosing a plan that best fits their needs—and spending their health care dollars in their own best interest, says Wolfsen. Deploying a decision support solution to help employees pick a plan, shifting to a lower-cost defined contribution approach to encourage employees to spend an employer health insurance as their own, and investing in population health all are key steps that employers have more time to explore and implement.