Employers Shifting Costs and Plan Designs to Avoid Excise Tax

The vast majority of health benefit plan sponsors that would be subject to the ACA Cadillac tax are implementing changes to avoid it, a survey finds.

Nearly nine in 10 employers have calculated whether their health plan will trigger the Patient Protection and Affordable Care Act (ACA) Cadillac tax, a 40% excise tax on employers that offer high-cost health plans to their employees, according to a new survey from the International Foundation of Employee Benefit Plans (IFEBP).

Sixty percent say that without any future changes, their plan will face the tax. Of those that are on track to trigger the tax, 62% say they will likely face the tax as soon as it is effective in 2018. An additional 10% say they will incur the tax in 2019, 12% in 2020, and 11% in 2021 or later.

“According to the ACA provision, the Cadillac tax thresholds will be indexed annually. The annual adjustments, however, will not be based on health care cost inflation but instead on the Consumer Price Index, which is considerably lower,” explains Julie Stich, CEBS, director of research at the International Foundation. “While we expected the number of plans subject to the tax would increase after 2018 because of this, we weren’t sure how many plans would trigger the tax during the very first year.”

The vast majority of plan sponsors that would be subject to the Cadillac tax are implementing changes to avoid it—only 5% of surveyed employers that are on target to hit the tax threshold report they plan to pay the tax. Forty percent are currently working on plan changes, and another 40% plan to take future action to avoid the tax.

NEXT: Actions to avoid the Cadillac tax

Among employers that have made or are considering changes, the most common actions to avoid the Cadillac tax are:

  • Shifting costs to employees (46%);
  • Moving to a high-deductible plan (39%);
  • Reducing benefits (33%);
  • Dropping higher cost plan options (31%); and
  • Adopting wellness and preventive care initiatives (26%).

"Employers are already taking action because making the changes needed to avoid the tax can be time-consuming and challenging—and they may have big implications for their workers," Stich says. "With only 5% of employers reporting that they plan to pay the Cadillac tax, many Americans can expect to see changes to their employer-sponsored health plan."

A number of employers have already made modifications to their plans so they will not face the tax. Nearly one-third of employers (32%) that have done calculations and are no longer on track to trigger the tax report they have already implemented plan changes to avoid it.

The survey also asked employers about their ACA reporting progress and found that most employers had a strong understanding of the requirements and were taking action to meet the upcoming deadlines. Only 8% plan to file for extensions.

“ACA Cadillac Tax and Reporting: 2015 Survey Results” was conducted in September, and received responses from 422 human resources (HR) and benefits professionals in the databases of the International Foundation of Employee Benefit Plans and the International Society of Certified Employee Benefit Specialists (ISCEBS).

Full survey findings can be viewed at www.ifebp.org/CadillacTax.