Plan sponsors are already considering ways to avoid the 40% tax to be smacked onto plans exceeding limits set by the Patient Protection and Affordable Care Act (PPACA) in 2018. The excise tax will affect employer-sponsored coverage with limits of $10,200 for employee-only coverage and $27,500 for an employee and spouse or family coverage. The annual limit is subject to adjustments for health costs, age, gender and cost of living.
This is the so-called “Cadillac tax,” Brad Kimler, executive vice president at Fidelity Benefits Consulting, told PLANSPONSOR. “No one wants to be the first guy to write a check for the excise tax—that would be a career-ending move,” he said. Avoiding the excise tax promises to be a key driver for most major corporations in 2018 and is already giving private health exchanges traction, according to Kimler.
One way for plan sponsors to stay under the limit is make the population healthier. Expect more workplace-based wellness programs. Health plans will work with high-efficiency providers, such as centers of excellence and integrated delivery networks that keep costs down.
Perhaps easiest, Kimler said, is reducing the actual benefit, by providing high-deductible health plans, usually coupled with an HSA, which will carry lower premiums for participants. Plan sponsors will likely advise their plan participants to stow their savings on premiums in the HSA against future medical costs—but often this advice goes unheeded, Kimler said.
Unlike the less-popular flex spending account (FSA), HSAs can be rolled over year to year and owned by the participant (see “HSAs and FSAs Offer Different Benefits Strategies”). They share some characteristics of 529 college savings plans and are, in a sense, self-policing.
Participants need to save statements or summaries from providers and explanations of benefits (EOBs) from insurance companies. “They can pay themselves back from the account,” Kimler explained. Receipts do not have to be accounted for year-to-year or used within a calendar year, as long as the coverage was in effect for the time of the claim. It amounts almost to a loophole within the device, he said.
This year, as plan sponsors survey the benefits landscape, Kimler said, it will sink in that health insurance costs rise because of sprouting reinsurance costs and fees. “What is the long-term glide path of our benefit plans?” is a question for corporations and benefits professionals. “How do we measure, over time, the variability and risk for different people in the work force?” Kimler said. Historically, everyone was in a fairly homogenous medical benefit plan with similar deductibles and co-pays.
But companies cannot stay under that excise tax limit by reducing the amount of subsidy they give. “They can only do it by reducing the value of the benefit they provide,” Kimler said. “So when you reduce the value of the benefit, you increase the deductibles and the-out-of-pocket exposures. The net result is that you’re going to have a population that is going to be richer or poorer, depending on their health status.”
“People don’t understand the risk of the out-of-pocket,” said Sunit Patel, senior vice president at Fidelity Benefits Consulting. “The burden isn’t going to be just on the premium but on out-of-pocket expenses, which can change a lot from year to year.”
The average person’s shaky financial literacy is a common topic, Kimler said, “but health care literacy is even worse. What’s a deductible? An out-of-pocket limit? Most consumers of health care have no idea what these terms mean, and they will become more important as companies migrate to the exchanges. Even companies that are just staying in over time will be forced to bring down their total premium value.”
Even with the lower premiums that go along with a high-deductible plan, Kimler said, participants need to save that money. “As exposures increase, there is going to be more variability for people,” he said.
“When consumers look at different price points in plans, they may not understand the deductible and the out-of-pocket,” Patel said. Differences in premiums are not necessarily driven by differences in quality of networks but by some of the insurance providers in health insurance being new, with their first chance to gain market share. “Just because you see a price point that is really high or really low, you shouldn’t think it necessarily equates with the quality of the benefit,” he said.
As costs in health care rise, plan sponsors will feel squeezed as they work harder to avoid hitting that cost threshold for providing a plan. “The floor is rising to meet the ceiling,” Kimler said, “and sometime between 2018 and 2022, employers will hit that mark.”