As Employers Try to Avoid ACA Excise Tax, Lower-Cost Health Plans Face Biggest Test

Many employers already are taking steps to avoid triggering the excise tax on high-cost health plans scheduled to go into effect in 2018, according to an Oct. 16 news release on a survey by the consulting firm Aon Hewitt.

The Affordable Care Act is to impose a 40 percent excise tax on the cost of high-cost health plans exceeding $10,200 for individual coverage and $27,500 for family coverage. The tax has been dubbed the “Cadillac tax.”

“While the excise tax provision of the Affordable Care Act doesn't go into effect until 2018, it is accelerating the pace of change for U.S. employers,” said Jim Winkler, chief innovation officer for Aon Hewitt in the release.

Employers will need to begin planning now, if they haven't already, to deal with the reality of the excise tax, said Helen Morrison, a principal with Ernst & Young LLP in Washington, at an Oct. 9 meeting of the American Bar Association's Joint Committee on Employee Benefits. There is no “silver bullet” that will control costs, but there are many opportunities, Morrison said.

Steps that employers can take to protect themselves include wellness strategies targeting areas that drive plan costs; delivery of medical services to patients by interactive audio, video and other technology; and implementation of new procedures to pay for benefits, Adam C. Solander, an associate for the Washington office of Epstein Becker and Green PC, told Bloomberg BNA.

Not So Much a ‘Cadillac' Tax But a ‘Camry' Tax

The excise tax should be given a more middle-class status name, such as the “Camry tax,” because it is to affect more than just high-cost plans, Morrison said. Even plans with a 70 percent actuarial value—a silver-tier plan under the ACA—will reach the thresholds soon after 2018, she said.

Because the tax threshold is tied to the urban consumer price index and not to health cost trends, which has been rising much faster, the tax will affect more than just high-cost plans, Morrison said.

Forty percent of employers expect the tax to affect at least one of their health plans in 2018, the Aon Hewitt news release said. Furthermore, 68 percent of employers expect the tax to affect at least one health plan by 2023 because medical costs are expected to rise, it said. The consulting company surveyed 317 U.S. employers, and the survey is yet to be released.

According to the news release, 62 percent of employers that have determined the effect of the tax are making changes to plans.

These changes include beginning out-of-pocket payments (33 percent), wellness incentives (31 percent) and reducing spousal eligibility (14 percent), the news release said. Some employers also are likely to start using reference-based pricing and narrow provider networks (40 percent) and limiting flexible spending, health savings or health reimbursement accounts contributions counted against thresholds (31 percent).

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


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