A recent survey finds that almost two-thirds of organizations facing the upcoming excise tax on high-cost group health plans (also known as the "Cadillac" tax) are making changes to their plans to avoid paying the additional cost. Respondents see the tax as one of the biggest remaining cost drivers of the ACA, followed by administrative costs and costs for reporting, disclosure and notification.
The feedback comes from survey of about 600 members of the International Foundation of Employee Benefit Plans, which has been deploying a series of surveys over the years on how single-employer plans are being affected by the Affordable Care Act.
The survey report states that "Since 2011, a steadily increasing percentage of organizations has taken action to avoid triggering the excise tax—a trend likely to continue." It finds that more than one in ten organizations have already adopted changes to avoid triggering the tax, while 21% are working on changes and 28% plan to implement changes sometime prior to the implementation of the tax in 2018.
A quarter of the respondents replied that changes would not be necessary because they either have no high-cost plans (23%) or they plan to pay the tax (2%).
Moving to a consumer-driven health plan (CDHP) is the most common solution to avoid the tax, the survey finds. It notes that in particular, more than 25% of all the responding organizations have "increased emphasis or added a high-deductible health plan (HDHP) with a health savings account (HSA) because of ACA, and an additional 14% are considering doing so." In addition, it notes, nearly one in ten organizations has adopted a full-replacement HDHP as a result of the ACA.
Actions being taken to avoid the excise tax in 2018
The survey asked those who indicated that they either have, are or will be taking action to avoid the tax how they are doing so, and received the following feedback:
- 52.9% are moving to a CHDP (e .g ., high-deductible plan)
- 36.9% are reducing benefits
- 35.7% are shifting costs to employees
- 31.4% are dropping higher cost plan options
- 28.3% are adopting wellness and preventive initiatives
- 23.7% are adding wellness incentives
- 20.6% are adding more affordable plan options
- 3.1% are moving to a private exchange
- 2.0% are taking some other form of action
- 14.9% aren't sure
The impacts for health insurers
"For years, health insurers have looked for ways to reduce the growth of health insurance premiums by increasing the transference of risk from the health plan to other parties," says healthcare economist and author Adam C. Powell, PhD, president of Payer+Provider Syndicate, who was not involved with the survey.
He says the Cadillac tax accelerates this process by applying a surtax to health plans that exceed set price thresholds. "Creating plans with prices below the surtax threshold is likely to become harder for payers over time, as the growth of the thresholds is set to be equal to that of the Consumer Price Index, plus 1%,” he says. "Given that medical cost inflation has historically been substantially above the inflation of the Consumer Price Index, plans will have to become leaner over time."
He notes, however, that there is also a counterbalancing factor that needs to be considered: if an employer provides a plan that does not provide 60% actuarial value, employees may go to an exchange to purchase a potentially subsidized health plan.
"As employers face penalties when employees get subsidized plans on exchanges, employers have the incentive to simultaneously have premiums low enough to avoid the Cadillac tax and benefits rich enough to provide a sufficient actuarial value," Powell says.
Powell said that the main alternative to reducing the actuarial value of plans is to reduce the network scope of plans, with a focus on lower-cost providers. "Given the dual constraints of the Cadillac tax and actuarial value requirements, we may see employers migrating to plans with narrower and narrower networks," he says.
Powell suggests that insurers can plan ahead by developing multiple networks at multiple price points, and notes that a number of insurers have created successful plans that are branded around the narrow networks of specific ACOs that involve well-known health systems. "These plans often are able to offer lower premiums while maintaining actuarial value," he says.