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Majority of health plans likely to trigger 'Cadillac' tax

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Nearly half of large employers expect at least one of their health plans to trigger the health care reform law's controversial “Cadillac” tax on high-cost health plans in 2018 if no additional measures are taken to control rising health care costs, a new survey shows.

According to the survey released Wednesday by the National Business Group on Health, 48% of employers said if no action is taken, at least one plan will trigger the 40% excise tax on the portion of health plan premiums that exceeds $10,200 for single coverage and $27,500 for family coverage when it goes into effect in 2018.

By 2020, 72% of employers predict one of their plans will reach the threshold, while their plan with the highest enrollment will be only a year behind, NBGH said in the survey. By 2026 nearly all employers — 94% — predict they will trigger the tax.

“I don't think it's possible to escape it,” said Brian Marcotte, Washington-based president and CEO of NBGH.

Because the excise tax is tied to the consumer price index rather than medical inflation, “virtually all plans” will reach the excise tax threshold, regardless of whether they are “rich” or not, Mr. Marcotte said.

That's despite the fact that most employers project their health care cost increases to remain flat at an average of 5% in 2016 for the third year in a row, kept in check largely by benefit program changes, the survey showed.

Before plan design changes, employers expect health care benefits costs to increase 6% in 2016, flat from the previous year, NBGH said.

Employers want to see the Cadillac tax repealed, Mr. Marcotte said, but “at a minimum they'd want to see it changed to be more reflective of costs.”

The “richness of the plan” depends on many factors, he said. A “moderate plan” that includes employees with an average age of 50, living in a high-cost area and with more chronic conditions may sooner trigger the tax than a “very rich plan” with a young population, he said.

Taking action

Employers are deploying several strategies to mitigate the impact of the Cadillac tax: By 2016, 76% of employers will add or expand consumer-driven health plans and consumerism tools, while 70% will add or expand their wellness incentives, according to the survey.

Eighty-three percent of employers will offer a consumer-driven health plan in 2016, up from 81% last year. But only 33% of employers plan to offer a consumer-driven health plan as the only option, though it's considered one of the effective tactics to control health care costs, according to the survey.

“A lot of companies would prefer not to go to a full replacement consumer-directed plan, and so they are taking the 'wait and see' approach as to whether the Cadillac tax will be repealed,” Mr. Marcotte said. If it's not repealed, “you're going to see another rush to implement these plans as the only option” in 2017, he said.

According to the survey, employers said the biggest drivers of rising health care costs include high-cost claimants at 43%, specialty pharmacy costs at 17% and overall medical inflation at 16%.

Specialty pharmacy management is a major concern for employers, behind the Cadillac tax, Mr. Marcotte said.

The focus “is not just on the drug, but it's on the appropriate use, the appropriate dose, the appropriate setting for delivery, and how you coordinate care with the rest of that individual's health care needs,” he said.

Private exchanges

None of the employers surveyed planned to eliminate health care coverage, and only 3% plan to move active employees to a private exchange, the survey showed.

Interest also appears to be fading, as only 24% of employers are considering a private exchange for their active employees for the future, compared with 35% considering the move last year.

On the other hand, 24% of employers will offer retirees coverage through a private exchange in 2016, up from 10% in 2013, according to the survey.

The survey was conducted in June and included 140 of the largest U.S. employers, NBGH said.