With the Cadillac tax slated to take effect in 2018, employers continue to evaluate their current health benefits and consider cost-reduction strategies to avoid triggering the tax.
For instance, some employers are increasing deductibles, eliminating covered services and using less expensive and narrower provider networks. These changes ultimately will result in employees paying for more of their healthcare out-of-pocket costs, according to an issue brief from the Kaiser Family Foundation (KFF).
The brief estimates that 16 percent of employers offering health benefits would have at least one health plan in 2018 that will exceed the $10,200 threshold for an individual. The percentage will most likely increase to 22 percent in 2023 and to 36 percent in 2028.
Additionally, as KFF points out, 19 percent of employers have a plan in 2015 that would exceed the tax threshold.
While the Cadillac tax helps to raise revenue to fund coverage expansion under the Affordable Care Act, it also provides incentives to control health plan costs over time. Additionally, based on design alone, the tax implies how employers may ultimately structure their health benefits. Here are a couple of examples:
Due to complications associated with managing reimbursements to insurers, employers may be prone to reduce the number of options offered to employees in terms of provider networks.
Because some employees may pass the threshold but not others, employers may be less inclined to give employees the ability to select benefit options that may trigger the tax. For instance, one benefit at risk is employer contribution to a flexible spending account since it allows employees to add up thousands of dollars to their benefit costs.
Employers could restructure employee contributions for plans above the threshold so they include a surcharge.
Efforts already are underway to fight the Cadillac tax. Alliance to Fight the 40--a coalition that includes Cigna and other private and public sector companies--wrote a letter last week to the House of Representatives, urging lawmakers to repeal the 40 percent tax on health benefits.