Employers Will Need to Pull Multiple Levers To Avoid ACA's Excise Tax, Practitioners Say

Health Insurance Report™ helps you track and analyze legal, legislative, and regulatory developments affecting the health-insurance industry throughout implementation of the Affordable Care Act...

By Sean Forbes

Oct. 22 — Fortune 500 companies such as Wal-Mart Stores Inc., Lowe's Cos. and PepsiCo. Inc. have moved to bundled pricing to control health-care costs for some big-ticket insurance-covered items such as hip and knee replacement procedures—one strategy among many that practitioners say employers can use to avoid the Affordable Care Act's impending excise tax on high-cost plans.

In fact, employers will need to use multiple strategies to keep their health-benefit plans from hitting or exceeding the ACA's 40 percent excise tax that starts in 2018, practitioners told Bloomberg BNA.

“There's not going to be one lever that an employer can pull to bend the cost curve,” said Adam C. Solander, an associate in the health care and life sciences practice in the Washington office of Epstein Becker & Green PC.

The excise tax, which has been referred to as the “Cadillac” tax since its inception, has now been renamed by some with more middle-class status names, such as the “Camry” tax, “Corolla” tax or “Chevy” tax, because they say health-care plans that offer more modest benefits may also be subject to the tax.

Nearly half of U.S. employers with 5,000 employees or more expect to trigger the ACA tax in 2018 and 82 percent by 2023, a recent Towers Watson survey found.

Levers that employers can pull to protect themselves from the excise tax include wellness strategies targeted in areas that are driving plan costs; delivering medical services to patients by interactive audio, video and other technology; and changing the ways employers pay for benefits, Solander said.

Success will mean a healthier workforce and therefore “a healthier bottom line for employers,” while failure could mean that employers “may find it very hard to justify health benefits” when they hit the excise tax, Solander said.

‘Sleeping Giant.'

Whatever levers they pull, employers will need to understand that they are “the sleeping giant” in the U.S. health-care system, meaning they have the muscle to change the whole system, according to Doug Emery, program implementation leader for the nonprofit Health Care Incentives Improvement Institute Inc. (HCI3)'s western region, based in Salt Lake City.

Emery offered three steps that employers should take to avoid the excise tax:

• band together “en masse to pursue payment reform” and drop fee-for-service medicine,

• restructure their benefits, and

• adopt price transparency tools.

Making the transparency tools work will require “putting pressure on plans that have no interest whatsoever in price transparency,” Emery said.

Bundled pricing, a payment strategy that involves negotiating a fixed fee for a set of treatment services, has been successful in reducing costs, Emery said.

The California Public Employees' Retirement System (CalPERS) provides “one of the best examples” in implementing bundled pricing, Emery said.

After examining claims data for total hip and knee replacement procedures, CalPERS found that costs averaged around $30,000, he said.

“So that's where they set the benefit. And guess what happened? All these providers who were all over the place suddenly converged around $30,000,” he said.


Many employers are making plan design changes now with an eye on 2018.

A recent Aon Hewitt survey found that a large number of U.S. employers are already making significant plan design changes after determining that their health-care plans would trigger the ACA's excise tax.

Employers in the survey said strategies they have implemented to control costs include:

• higher out-of-pocket costs (33 percent of employers),

• increasing the use of wellness incentives in their plans (31 percent),

• cutting spousal eligibility or subsidies through mandates or surcharges (14 percent), and

• implementing narrow/high performance networks (5 percent).

Wal-Mart and other retailers have dropped coverage for their part-timers and sent them to the public exchanges. However, that tactic won't work for employers with workers in the science, technology, engineering and mathematics (STEM) fields, Emery said.


The Aon Hewitt survey also found that 88 percent of employers are in favor of repealing the ACA's excise tax, but only 2 percent of employers would stop offering health-care coverage as a strategy for minimizing their exposure to the tax.

The American Benefits Council, which represents major U.S. companies with benefit plans, also favors eliminating the excise tax.

But if it can't be cut, ABC suggests setting it to health-care cost inflation, rather than the Consumer Price Index for All Urban Consumers, which is typically much lower.

But employers should prepare now for 2018, Emery said.

“2018 may seem four years away, but it's going to happen quickly,” Emery said. Corporate executives will have to start paying attention to the excise tax now and thinking more strategically about it, he added.

To contact the reporter on this story: Sean Forbes in Washington at sforbes@bna.com

To contact the editor responsible for this story: Sue Doyle at sdoyle@bna.com