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From the Trust Perspective: Will the Cadillac Tax affect you? 

by Bob Haynes, League Associate Director Risk Management Programs

A recent headline in Business Insurance read, "Majority of health plans likely to trigger ‘Cadillac tax’" (Business Insurance August 12, 2015). The article cites a survey by the National Business Group that found nearly half of large employers expect at least one of their health plans (assuming the employer offers multiple plans) to trigger the Cadillac tax on high-cost health plans when the tax takes effect in 2018 if no additional measures are taken to control rising health care costs.

"Cadillac" may be a misnomer since the tax is not based on the benefits provided by the plan but rather the cost of the plan. Unfortunately, cost is not dictated solely by benefits, i.e. whether deductibles are low and coinsurance percentages high; cost is determined primarily by claims. The tax is 40 percent applied to the amount that exceeds the thresholds in the Affordable Care Act: $10,200 for single coverage ($850/month) and $27,500 for family coverage ($2,292/month).

Assume a single rate of $10,800 per year, which is $600 over the threshold, for an employer with 100 employees. The excess amount is $60,000. After the 40 percent Cadillac tax, the employer will owe an extra $24,000. This tax is ultimately borne by the employer (or employee for dependent coverage), although special attention needs to be paid to the IRS rules that will apply.

The aforementioned survey determined nearly half of the employers that responded would trigger the tax in 2018, 72 percent in 2020 and 94 percent in 2026. The threshold does increase each year, but it is based on the consumer price index rather than on medical inflation, which increases at a faster pace.

The question then becomes, what should employers do and how soon should they begin. The answer to the second question is now!

Employers essentially have two levers to contain cost: change plan designs and promote consumerism and/or improve employee health.

High deductible health plans generally cost less and promote consumerism if tools like medical services pricing apps are provided. An anticipated 75 percent of employers will add or expand a consumer-driven health plan by 2016. These plans are much more prevalent in the private sector than in the public sector. The theory is that individuals will make wise, prudent decisions in accessing health care when they are bearing a greater proportion of the costs and have the tools to shop for the best rate. In this scenario, the employer saves money on the health plan design and claims as employees are better stewards of their health care dollars.

The second option is improving employee health. There are a number of steps an employer can take to build a healthy worksite. These may include onsite biometric screenings with health coaching, changing to healthier options in the drink and snack machines, developing walking programs for employees to participate, etc. Additionally, employers can work with their health provider to develop programs, such as our Personal Care Management program, that will reduce gaps in care and ensure chronic conditions are properly managed.

The Health Benefits Trust offers its members $100,000 in wellness grants each year to help fund these programs and each member is eligible for up to $3,000 annually. We’ll also work with you to help identify and implement effective programs. Apply for your wellness grant by visiting rms.nclm.org/wellness to fill out the one-page application!

Again, with the Cadillac Tax looming and the additional costs this may incur, now is the time to develop a strategy to reduce the cost of your plan – both through plan design and reduction of claims.