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Benefit managers focus on Cadillac tax issues for 2016 enrollment season

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Moving on from the IRS reporting requirements that were front of mind during the 2015 fall open enrollment for group health plans, benefits managers are grappling with implementing strategies to avoid the Cadillac tax for the 2016 enrollment season.

Confronted with the possibility of triggering the Cadillac tax — the 40% excise tax on the portion of health plan premiums that exceed $10,200 for single coverage and $27,500 for family coverage effective in 2018 — employers who haven't yet set a plan in motion are making plan design changes such as increasing cost-sharing, reducing subsidies and eliminating rich plans, experts say.

But employers who have a strategy in place are this year “stepping up wellness activities,” increasing consumerism tools, and providing incentives for wellness participation, said Steve Wojcik, vice president of public policy with the National Business Group on Health in Washington.

“The overriding concern for most employers, especially those who've already been offering coverage that's affordable and minimum value … is trying to make sure that your benefits don't trigger the excise tax,” Mr. Wojcik said.

Under the Patient Protection and Affordable Care Act, a health plan meets the minimum value standard if it covers at least 60% of the total cost of medical services. A plan is considered affordable if the employee's share of the annual premium for the lowest priced individual plan is no more than 9.5% of the worker's annual household income.

An August survey of 140 large employers by the NBGH found that 76% of employers are adding or expanding consumerism tools, which help employees evaluate medical treatments and compare prices, in 2016 to delay the excise tax. The study also found that 76% are adding or expanding consumer-driven health plans, and 70% are adding or expanding wellness incentives.

If employers made no changes, the majority of large employers would trigger the excise tax by 2019 for at least one plan, the study found.

Employers who haven't set a strategy don't have much time to waste.

“It takes a number of years to make the changes that they need to make in order to stay below the tax,” Mr. Wojcik said. “You can't just do that from one year to the next, or it's going to be a drastic change, and employees will let you know that they don't like that.”

“This is the year where employers are saying, 'I know by 2018 I need to make changes, so I need to do it over (the next) three years,' ” agreed Rob Moroni, Detroit-based Midwest corporate market leader for The Segal Group Inc. “Everyone has now decided what their strategy is for the excise tax, and they are implementing in '16.”

Changes are best made in phases, he said.

“You kind of look at which lever you want to pull” to bring down plan costs, Mr. Moroni said. “Do I want to pull plan design lever (or) do I want to pull contribution lever? But with the excise tax, the contribution lever doesn't work, because you have to bring down the value of the plan.”

Thoroughly communicating those major plan design changes is essential, experts said.

“Employers are really starting to feel for their employees a little bit more in terms of the cost (and)… the impact on employees,” said Wally Dawson, Raleigh, North Carolina-based managing principal with Digital Benefit Advisors.

They are “very consciously trying to engage their employees a little bit more so that they understand why they are having to pass on these cost increases,” he said.

In addition, he said, employers are engaging workers “to make wise decisions about their benefit choices so they can be part of the solution of helping to combat future cost increases.”