Cadil­lac tax revs wor­ries

Em­ploy­ers look for ways to avoid ex­cise tax

Modern Healthcare - - The Week In Healthcare - Joe Carl­son

With the health­care re­form law ex­pected to drive up em­ploy­ers’ costs to in­sure their work­ers, many com­pa­nies re­port that their top concern to­day is that their costs will rise high enough to trig­ger a 40% tax on ben­e­fits for so-called Cadil­lac health plans.

A sur­vey of 894 em­ploy­ers con­ducted in June by hu­man re­source con­sult­ing firm Mercer found that the ex­cise tax on high-cost plans was the top concern com­pa­nies have about the yearold Pa­tient Pro­tec­tion and Affordable Care Act.

He­len Dar­ling, pres­i­dent and CEO of the Na­tional Busi­ness Group on Health, which rep­re­sents 330 busi­nesses that pro­vide in­surance to 55 mil­lion peo­ple, agreed with Mercer’s find­ing on the ex­cise tax.

“Ev­ery­body is very wor­ried about that, and should be,” she said. “Most em­ploy­ers are go­ing to be work­ing very hard, and they started last year, to make sure they don’t have to pay the Cadil­lac tax.”

Al­though em­ployer con­tri­bu­tions to work­ers’ health plans are tax-free to­day, Sec­tion 1401 of the Health Care and Ed­u­ca­tion Af­ford­abil­ity Rec­on­cil­i­a­tion Act that mod­i­fied the re­form law ap­plies a 40% tax to in­surance pre­mi­ums if the over­all cost of the plan ex­ceeds $10,200 for an in­di­vid­ual or $27,500 for a fam­ily. The ex­cise tax goes into ef­fect in 2018 and will ap­ply only to the part of the cost that ex­ceeds the statu­tory caps.

The caps were in­tended to rein in the high uti­liza­tion that is thought to oc­cur with es­pe­cially gen­er­ous health ben­e­fits, but Dar­ling said the ceil­ing was set too low. She said it al­ready costs al­most $20,000 for a fam­ily of four, and sev­eral pro­vi­sions in the re­form law are likely to in­crease pre­mium costs even if em­ploy­ers do noth­ing else.

Tracy Watts, a con­sul­tant in Mercer’s Wash­ing­ton of­fice, said in the state­ment about the study that em­ploy­ers who rely on gen­er­ous ben­e­fits to at­tract em­ploy­ees have rea­son to be con­cerned about the tax, but so do many other com­pa­nies for rea­sons be­yond their con­trol. “There are rea­sons other than rich­ness of ben­e­fits that drive up cost, such as hav­ing an older pop­u­la­tion or be­ing lo­cated in a high-cost metropoli­tan area,” Watts said in the re­lease.

Shift­ing the costs to work­ers does not de­crease the over­all cost, how­ever, so em­ploy­ers are con­sid­er­ing cut­ting costs in other ways.

Roughly 92% of sur­vey re­spon­dents told Mercer they plan to add or strengthen “pro­grams or poli­cies to en­cour­age more health­con­scious be­hav­ior.”

Also, 63% said they will re­duce spend­ing on de­pen­dent cov­er­age. Watts said it ap­pears many large em­ploy­ers would adopt the prac­tice com­mon among smaller em­ploy­ers of con­tribut­ing less to cov­er­age for em­ploy­ees’ de­pen­dents, es­pe­cially since the re­form law man­dates in­sur­ers must ac­cept de­pen­dents up to 26 years old.

In an­other re­ac­tion to the re­form law, 8% of em­ploy­ers said they were likely or very likely to drop all health cov­er­age in fa­vor of hav­ing em­ploy­ees get in­surance through state-based ex­change—a fig­ure vir­tu­ally un­changed since the same sur­vey a year ago.

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