There are several issues looming on the ACA horizon that have garnered a fair amount of attention. Though the changing definition of small group employer is taking top-of-mind precedent, probably a greater concern is the potential impact of the Cadillac Tax.
The Cadillac Tax is a 40 percent excise tax on high cost employer-sponsored health plans and is one of several financing elements of the Affordable Care Act. It is projected to generate $80-$120 billion in tax revenue and will take effect in 2018. The high cost thresholds have been set at $10,200 for individual coverage and $27,500 for family coverage. There is still final regulation work to be completed which is intended to include indexing of the thresholds in future years.
We have been working to provide a Cadillac Tax analysis as part of a strategic planning process. At a high level, we apply 10 percent medical trend to the current plan rates to determine the client’s excise tax liability in 2018 if they did not make any plan design changes. The fact that the regulation is currently indifferent to regional cost variances puts some state employers at a much greater likelihood of triggering the excise tax without aggressive plan design adjustments. Here is an example:
|Current Single Monthly Rate||$580.56|
|4 years of 10% medical inflation on avg.||1.4641|
|Projected 2018 Single Rate||$850.00|
|Annual Premium Level||$10,200.00|
If an employer has a combination of higher current rates and/or higher than average medical inflation over the next four years, the plan will trigger an excise tax level.
In addition to being a funding mechanism for ACA, the Cadillac Tax was positioned as an attempt to reduce costs by providing incentives for employers to offer plans that included more cost sharing, in hopes of reducing unnecessary medical services. In addition, there were estimates that the tax would only impact 30 percent of employer plans. Unfortunately, the number of potentially affected plans will be significantly higher, and public sector plans in particular will have the greatest exposure. Remember, the primary purpose of ACA was to reduce the number of uninsured people. Though there has been progress on that front, our early work indicates that the Cadillac Tax is rapidly accelerating the erosion of benefit levels for most employer sponsored plans.
As we have seen with all things ACA, there will be more twists and turns as special interests (e.g. union group plans) move to be exempted or push for repeal of the tax altogether. There is a coalition called the “Alliance to Fight the Forty” that has banded together to add new momentum to the “Ax the Tax” movement currently in the House. We will continue to provide updates as this next ACA feature moves forward.