The fate of the extraordinarily unpopular Cadillac Tax is up in the air as legislators from both parties seek a late deal to repeal it or change it by the end of the year, in order to prevent it from going into effect in 2018, reports The Hill.
If it proceeds, it would become the country’s first-ever tax on healthcare benefits by placing a 40% levy on high-value employer-based health plans, defined as those worth more than $10,200 for an individual or $27,500 for a family.
Without the support of Democratic leaders, the White House is largely on its own in defending the tax, along with a list of 101 economists.
In the meantime, the looming 2018 date is forcing employers to look at strategies for avoiding the tax. According to a survey by the American Health Policy Institute, nearly 90% of large employers have already taken steps to prevent their plans from triggering the tax.
Adam Solander, attorney at Epstein Becker Green, tells Healthcare Dive employers need to begin strategizing now on how to evolve their plan designs and purchasing methods to reduce exposure, noting “employers embracing population health strategies and changing the way they pay for care, can use real reform to avoid the excise tax.”
Solander highlights the thresholds for the tax are indexed to the Consumer Price Index (CPI-U) and not medical inflation, which far outpaces the CPI-U. As a result, “the amount employers spend on healthcare will rise faster than the thresholds, eventually affecting every employer plan,” he says, so employers will need strategies to keep the costs of their plans under the thresholds.
“From a true healthcare reform standpoint, employers are investing more in population health management and telehealth services,” Solander says. “Additionally, employers are seeking to move away from fee-for-service models and are exploring direct contracting, reference-based pricing, and bundled payment models.”
These strategies can be expected to impact health insurance companies, Solander adds. He notes the ACA has accelerated the trend toward self-funding, particularly for smaller employers, and the ACA governs insured products differently than self-funded products.
“For example, self-funded employers are not subject to state insurance mandates or the essential health benefits provision of the ACA,” he says. “Thus, in some cases those employers may be able to offer a plan that is more tailored to the needs of their workforces and is thus cheaper.” Solander also points toward employers moving away from the fee-for-service models to more accountable models. “As a result, we have seen insurers incorporate more accountable care models into the products they offer to employers,” he says.
Small businesses, including those in healthcare, may find themselves the most impacted, Solander adds, because small employers have the least negotiating power and will therefore have the most difficulty implementing plan designs that avoid the Cadillac Tax.
Whatever legislators do with the Cadillac Tax, Solander suggests it should support the tax’s purpose of promoting price sensitivity in employer-based plans. “However, as drafted, even employers who have embraced innovation and are price sensitive in their benefit design will be affected eventually,” he says. “In order to achieve the goals of the Cadillac Tax, it must be amended so that the employers who are embracing innovation will not be adversely impacted.”