Some employers might want to consider scaling back any generous health plans they offer their employees.
If it”™s a high-end plan with little employee cost sharing, it could trigger the so-called Cadillac tax as a part of the Affordable Care Act, according to Kevin Smith, a health insurance expert with Mercer L.L.C.
Much of the national focus on the ACA has surrounded the uninsured and public health exchanges. However, the next phase of planning for large employers is already underway, Smith told business leaders in Tarrytown at the first Business Intel Series hosted by the Westchester County Association.
In 2018, employers that offer individual and family health plans worth more than $10,200 and $27,500, respectively, will be charged a 40 percent tax on every dollar beyond the cap, Smith said.
If every employer were to keep their current plans into 2018, more than 42 percent would trigger the tax, according to Mercer reports. By 2022, 55 percent of businesses would trigger it if they made no changes.
“A lot of you may be scrambling for compliance just in 2014,” Smith said at the seminar held at the Tappan Hill Mansion April 3. “You may be thinking ”˜2018 seems too far away to plan for. My head might explode.”™ But you can”™t keep doing that.”
Roughly 69 percent of employers said the excise tax did not influence 2014 health plan decisions, according to Mercer”™s national survey of employer-sponsored health plans.
But of the third who did consider the tax when planning, the methods to avoid it varied.
About 11 percent of respondents dropped the higher-cost plan altogether. Another 12 percent of respondents added or expanded supplemental plans that do not count toward the cap. And 19 percent, the largest proportion of respondents, introduced another lower-cost plan for employees to choose from or took steps to increase enrollment in lower-cost options.
“Previously offering a high-value plan was thought of as the right thing to do,” Smith said. He said many companies use generous benefit plans to attract and retain top talent. “But you may need to reconsider.”
Theories behind the tax differ. But Smith said he believes the tax is intended to control costs. Historically, consumers in rich plans “without skin in the game” have been unaware of how much their health care costs and have proceeded to see any health providers they”™ve wanted with no concern for cost.
By reining in the top spenders and making them more aware of how they are spending, the cost of health care may be reduced, Smith said.
Smith recommended employers begin to shift employees into lower-cost plans now to ease into the transition. If benefits are cut off abruptly, employees will likely be upset, he said. If the change happens more naturally, there will be “less noise.”
Representing Mercer, one of the largest private health exchanges, Smith said exchanges can offer employers and employees more options and control over health plans.
Similar to the public exchanges hosted by the national and state governments, a private exchange is a marketplace for employers to shop for health plan coverage for their employees. The employer can choose a health insurance provider and allow employees to choose the level of coverage. Or the employer can set a defined contribution to spend toward employees”™ coverage, and then the employees can select which insurer and plan they want.
Through an exchange, employees have more options and will likely choose which plans fits them best, eliminating extra costs, Smith said. An exchange can also offer supplemental plans like dental, pet or life insurance, which isn”™t counted toward the excise tax cap but can add to an overall benefit package.
All the plans offered on the exchange would be below the excise tax cap.
“There”™s an evolving benefit delivery model,” Smith said. “But really, that”™s nothing new.”
