With the healthcare reform law expected to drive up employers' costs to insure their workers, many companies report that their top concern today is that their costs will rise high enough to trigger a 40% tax on benefits for so-called Cadillac health plans.
Cadillac tax revs worries
Employers look for ways to avoid excise tax
A survey of 894 employers conducted in June by human resource consulting firm Mercer found that the excise tax on high-cost plans was the top concern companies have about the year-old Patient Protection and Affordable Care Act.
Helen Darling, president and CEO of the National Business Group on Health, which represents 330 businesses that provide insurance to 55 million people, agreed with Mercer's finding on the excise tax.
“Everybody is very worried about that, and should be,” she said. “Most employers are going to be working very hard, and they started last year, to make sure they don't have to pay the Cadillac tax.”
Although employer contributions to workers' health plans are tax-free today, Section 1401 of the Health Care and Education Affordability Reconciliation Act that modified the reform law applies a 40% tax to insurance premiums if the overall cost of the plan exceeds $10,200 for an individual or $27,500 for a family. The excise tax goes into effect in 2018 and will apply only to the part of the cost that exceeds the statutory caps.
The caps were intended to rein in the high utilization that is thought to occur with especially generous health benefits, but Darling said the ceiling was set too low. She said it already costs almost $20,000 for a family of four, and several provisions in the reform law are likely to increase premium costs even if employers do nothing else.
Tracy Watts, a consultant in Mercer's Washington office, said in the statement about the study that employers who rely on generous benefits to attract employees have reason to be concerned about the tax, but so do many other companies for reasons beyond their control. “There are reasons other than richness of benefits that drive up cost, such as having an older population or being located in a high-cost metropolitan area,” Watts said in the release.
Shifting the costs to workers does not decrease the overall cost, however, so employers are considering cutting costs in other ways.
Roughly 92% of survey respondents told Mercer they plan to add or strengthen “programs or policies to encourage more health-conscious behavior.”
Also, 63% said they will reduce spending on dependent coverage. Watts said it appears many large employers would adopt the practice common among smaller employers of contributing less to coverage for employees' dependents, especially since the reform law mandates insurers must accept dependents up to 26 years old.
In another reaction to the reform law, 8% of employers said they were likely or very likely to drop all health coverage in favor of having employees get insurance through state-based exchange—a figure virtually unchanged since the same survey a year ago.
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