Among the costs of complying with the Affordable Care Act, one potentially big-ticket item is far enough in the future that there is perhaps little cause for alarm. But it may not be a good strategy to sit idle for long, some experts say.
Employers that trigger the “Cadillac tax” could suffer severe financial effects. The controversial ACA provision will, starting in 2018, require self-insured companies to pay a 40 percent excise tax on the value of group health benefits — the total cost of coverage including both the employer’s and employees’ shares — that exceeds a threshold amount.
The tax applies to group plans offered by fully insured employers as well, but the law requires insurers to pay it. Those organizations won’t get a free pass, though. Observers agree it’s a forgone conclusion that insurers will pass that cost to their group customers.
As the legislation is currently written, plans that cost more than $10,200 for individuals and more than $27,500 for families will be subject to the tax. Those thresholds may be altered before 2018 based on medical-cost inflation, and also may be adjusted for people in high-risk professions or those over a certain age or of a certain gender, according to a United Healthcare fact sheet.
Answering a recent Towers Watson survey of 420 benefits managers at employers with more than 1,000 workers, 44 percent of the managers said they are “very confident” they will trigger the tax if they don’t prepare for it by making changes to their health-care programs. Seventeen percent said they are “somewhat confident.” Thirty-one percent said the Cadillac tax will have a “significant influence” on their health-care strategy by 2015.
Changing plans enough to avoid the tax may be a rigorous exercise that transfers significant additional cost burden to employees. But what will constitute “preparing” to come in under the threshold, given that most employers are already making changes to their plans each year to keep up with rising costs?
“The excise tax provides a specific dollar goal, whereas most companies today don’t have a specific long-term cost goal,” says Tom Billet, a Towers Watson senior consultant. “To use a football analogy, it’s the difference between starting the game with a goal of scoring as many points as possible versus being behind by two touchdowns with three minutes left and knowing you have to score 14 points or you lose the game.”