Low health care cost increases don’t lessen Cadillac tax worries

For the fifth straight year, employers will hold health care cost growth to less than 5 percent, according to Mercer. Early responses from Mercer’s National Survey of Employer-Sponsored Health Plans show employers are predicting that health benefit cost per employee will rise by 4.2 percent on average in 2016. Despite the slower cost trend, 54 percent of respondents plan to make some changes to their health care programs in 2016. According to Tracy Watts, senior partner and Mercer’s national health reform leader, “Employers are well aware that the ACA’s excise tax on high-cost plans is slated to go into effect in 2018, even as calls for reform or repeal are mounting.”

Cadillac tax. The Patient Protection and Affordable Care Act (ACA) created the “Cadillac” tax to act as a revenue offset provision to help pay for the cost of the law. Beginning in 2018, a non-deductible excise tax will be imposed on the cost of employer-sponsored health programs that exceed an aggregate value of $10,200 for individual employee-only coverage and $27,500 for family coverage. Each tax period, employers will be responsible for calculating the amount of excess benefit subject to the tax for any applicable employer-sponsored coverage offered to employees. The excise tax must be paid by the employer.

Mercer has estimated that, based on plan cost reported in 2014, about a third of all employers (31 percent) were on track to reach the excise tax threshold.

The need to keep cost under the threshold has already prompted employers to make significant changes. Mercer found that 25 percent of survey respondents say they are considering adding a consumer-driven health plan (CDHP) or taking steps to increase enrollment in an existing CDHP specifically to help avoid the tax—on top of the 41 percent that have already done so. The survey noted that other ways of avoiding the excise tax include eliminating health care flexible spending accounts (21 percent of respondents are considering this) and moving to a private benefits exchange (23 percent are considering).

In addition, 42 percent of respondents say they are considering adding or expanding programs to improve employee health and well-being, specifically as a way to avoid the excise tax.

“It may be tough to measure, but a lot of employers believe investments in programs to improve employee health have paid off in medical plan savings,” says Beth Umland, Mercer’s director of research for health and benefits. “While there are many opinions about why we’re seeing a slow-down in benefit cost growth nationally, efforts to educate, engage and support employees in improving their health should make every employers’ to-do list.”

SOURCE: Mercer press release, September 16, 2015.

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