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

Fortune 500 companies such as Wal-Mart Stores Inc., Lowe's Cos. and PepsiCo Inc. have moved to bundled pricing to control costs for their health-care plans—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 us.

“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 that 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 health-care system, said Doug Emery, program implementation leader for the nonprofit Health Care Incentives Improvement Institute Inc. (HCI3)'s western region, based in Salt Lake City.

Emery gave three top 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 shown success at cost reductions, 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.