Quarter Of Employers Still Have Not Determined Impact Of Excise Tax On Health Plans


A quarter of employers said that they still have not determined the impact of the Patient Protection and Affordable Care Act’s (ACA) excise tax on high cost health plans, according to recent research from Aon Hewitt. In addition, more than one-third of employers reported that their executive leadership and finance teams have limited or no knowledge of the implications of the tax for their organizations.

Excise tax. In 2018, the ACA will impose a 40 percent excise tax on employer-sponsored health coverage that exceeds a threshold amount, otherwise known as “Cadillac” health plans. The tax will be imposed with respect to coverage for a tax period if: (1) an employee is covered under an applicable employer-sponsored plan; and (2) there is any “excess benefit” with respect to the coverage. An excess benefit is defined as the sum of the monthly excess amounts during a tax period. A monthly excess amount is the excess of: (a) the aggregate cost of the applicable employer-sponsored coverage of the employee for the month, over (b) an amount equal to 1/12 of the annual limitation for the calendar year in which the month occurs.

Majority taking steps to minimize exposure. Aon Hewitt did find that while a quarter of organizations have not assessed the impact of the excise tax on their health plans, the majority of companies are taking steps to minimize their exposure to the tax. The survey noted that 40 percent of employers expect the excise tax to affect at least one of their current health plans in 2018 and 14 percent expect it to immediately impact the majority of their current health benefit plans.

Of those employers that have determined the excise tax’s impact, 62 percent said they are making significant changes to their health plans for 2015:

• 33 percent are reducing the richness of their plan designs through higher out-of-pocket costs, including 10 percent that say they will eliminate high-cost, rich design options;
• 31 percent are increasing the use of wellness incentives in their plans;
• 14 percent are evaluating private exchange options for pre- and post-65 retirees, while 7 percent are considering private exchanges for active employees;
• 14 percent are significantly reducing spousal eligibility or subsidies through mandates or surcharges; and
• 5 percent are implementing narrow/high performance provider networks.

“While the excise tax provision of the ACA doesn’t go into effect until 2018, it is accelerating the pace of change for U.S. employers,” noted Jim Winkler, chief innovation officer for Aon Hewitt’s Health business. “Over the next few years, employers expect to use both traditional and innovative tactics to make substantive changes to their health plans to minimize their exposure to the tax and put them on a path to lower rates of health care cost increases.”

Most favor repeal. Eighty-eight percent of employers favor repeal of the excise tax, but just 12 percent have taken public actions to express opposition to the tax. However, Aon Hewitt found that only 2 percent of employers said they are likely or highly likely to consider eliminating employer-sponsored health care coverage as a strategy for minimizing their exposure to the tax.

“While employers are continuing to make short and long-term changes to their health plans in anticipation of the excise tax, our data suggests that most would like to see the tax repealed,” noted J.D. Piro, Aon Hewitt’s health care legal practice leader. “However the presence of the tax is not likely to deter the majority of employers from continuing to sponsor health benefits over the next 10 years.”

For more information, visit http://www.aonhewitt.com.

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