Many Westchester businesses are focused on the upcoming healthcare employer mandate—that is, beginning next year, large employers must offer affordable health insurance to full-time employees and their dependents or be subject to penalties. (This applies to employers with 50 or more full-time employees and will be phased in over two years, depending on employer size). What employers also need to focus on—though it won’t take effect until 2018—is the excise tax, also known as the “Cadillac Tax.” The tax applies to what the government considers “high-cost” employer health-benefit plans — for most workers, more than $10,200 annually for individuals and $27,500 for families. Employers will have to pay 40 cents of tax for every dollar of health-care costs that exceed those amounts.
“You can’t afford to put this off,” said Kevin Smith, exchange solutions leader in the Northeast market for Mercer Health and Benefits, at the “Healthcare Reform 2.0” breakfast organized by the Westchester County Association (WCA), the first in its new Business Intel Event Series. “The majority of employers are going to get hit by this. By taking steps now, employers can mitigate the effects of the tax well before it falls into place.”
So should employers trade in their Cadillac plans for Corollas?
“Many employers have already adopted strategies to scale back coverage,” said Smith, citing the results of a national survey of employers recently conducted by Mercer. Companies are offering more lower-cost plans, unbundled medical and dental plans, supplemental plans, and Consumer Driven Health Plans (CDHPs), where high-deductible plans are coupled with flexible spending or healthcare savings accounts, allowing employees to manage their own healthcare costs.
And some employers are considering dropping coverage altogether in favor of paying penalties—which end up being considerably less than the excise tax—a move Smith cautioned against. “It might seem a simple solution, but over time, that may not work as a strategy for attracting key talent, who may be looking for good benefits as part of their compensation,” he said.
Many employers are also turning to new delivery models such as private exchanges, Smith said, whereby employees are given a fixed healthcare spend to shop for plans. “Private exchanges can simplify the administration of healthcare and save employers money,” Smith said.
“When offered several choices in a private exchange, employees tend to ‘right-size,’ and buy down, once they realize they may have been over-insured,” said Smith.
And ultimately, this consumer realization of the true costs of healthcare—and a more efficient use of health insurance—is what the government wants as an outcome of the Cadillac Tax, he added.
“The government feels that employees in ‘rich plans’ had no skin in the game because they shared almost none of the costs, ” said Smith. “The tax is designed to change consumer behavior. So if you continue to offer high-cost plans, you will be taxed.”