Login Register Subscribe
Current Issue

New health care tax looms for many employers who don't change plans

Reprints

Without design changes to their health care plans, nearly half of large employers could be liable for a federal excise tax created by the health care reform law when it takes effect in 2018, according to a new analysis by Towers Watson & Co.

The analysis of health plans offered by employers with at least 5,000 employees projects that 48% of the employers could be hit by the tax in 2018, with 82% affected by 2023.

The analysis assumes that medical costs will rise 7% annually and that employers will maintain their current plan designs.

While the tax is well-known, how it is calculated is not, Randall Abbott, a senior Towers Watson health strategist in Boston, said in a statement.

For example, he said, the excise tax is calculated on both employer and employee premium contributions. In addition, future changes to the health plan premium excise tax cost trigger — $10,200 for single coverage and $27,500 for family coverage in 2018 — will be linked to annual increases in the consumer price index, not to health care cost inflation.

“For most employers, the excise tax will be a question of when, not if, unless action is taken,” Mr. Abbott said in the statement.

The Patient Protection and Affordable Care “has put a timer on cost management for many employers and unless one cuts benefits or improves program performance there's a real risk of triggering it,” Mr. Abbott added.

Indeed, more employers are considering and adopting consumer-driven health plans, which, because of their high deductibles, are much less expensive than more traditional plan designs and will be less likely to trigger the excise tax.

“The migration to account-based plans has been steady for more than a decade but has unquestionably accelerated under health reform. Our latest surveys indicate a continued exploration and adoption rate by employers in the years ahead with more and more considering full replacement. The ACA has put a time clock on cost management, and the race is on. 2018 is the starting line, not the finish line,” Mr. Abbott said.