But is there any need to start making preparations so far in advance? Absolutely, says Ron Fontanetta, the consulting firm’s senior health-care consulting leader. “It takes time to evolve and amend your program,” he says. “Companies don’t want to be in a position where they wake up in 2017 and realize they have to make dramatic changes in one year. They need to anticipate, based on their current cost structure, whether they are they likely to trigger the tax. And if they are, they should make changes over time in a thoughtful, rational, sequential way.”
Keep in mind that, of course, Towers Watson and other human-capital consulting firms — several others are also advising companies to get moving now — get paid to help companies adjust their benefits strategies.
Sheldon Blumling, an attorney with Fisher & Phillips who advises companies on health-care matters, notes that many experts in the field believe that either the Cadillac tax’s thresholds will be raised or it will be removed from the law altogether before 2018.
“All the corporate people I’ve talked to have said they’re waiting to make decisions around this,” says Blumling. “Worrying about an excise tax that’s four-plus years out is alarmist, as is much of what you read about health-care reform. There’s a reason that provision was pushed so far out, which is that it’s not very palatable politically.”
Ed King, CFO of 600-employee Marina del Rey Hospital and a principal at Hardesty LLC, a national executive-services firm focused on the office of the CFO, says the Cadillac tax is nowhere near his radar screen yet. “Things about that provision are likely to change,” he says. “I’m more concerned with what my costs are going to be in the next six to 12 months.”
The reality is, Blumling says, that very few employers are going to pay the tax. “That tax is going to set a standard for the value of group health plans, and employers and carriers are going to make sure their plans come in under the threshold. Nobody’s going to be interested in paying a 40 percent excise tax.”
In a recent address, Jonathan Gruber, an MIT professor who helped write the ACA, provided insight on the Cadillac tax. “Let’s be clear on what this is,” he said. “In America today if you are paid in wages you are taxed; if you’re paid in health insurance you’re not. So if [my employer asked me whether I] wanted a $1,000 raise or $1,000 in orthodontia benefits for my daughter, I would say, ‘if you give me a thousand-dollar raise I’m going to take home $600. I’ll choose the orthodontia.’”
That taxing system, Gruber said, has three fundamental flaws. First, it’s incredibly expensive. “If we taxed health insurance like we tax wages, we would raise $250 billion a year more in tax revenues. That’s twice what it would cost every uninsured American to buy health insurance.”
Second, tax-free benefits are unfair because the richer someone is, the bigger tax break that person gets, by virtue of being in a higher tax bracket.
Finally, and most importantly, it causes excessive health-care consumption. “People are buying health care with 60-cent dollars, so they buy too much of it,” Gruber said.
The Cadillac tax, he points out, is a compromise between taxing all health benefits and taxing none of them. “It’s intended to neutralize the playing field between health insurance and wages. In doing so it’s going to exert enormous downward pressure on the most-expensive health insurance policies and be a key cost-control device.”