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Cadillac tax delay may slow private exchange enrollment surge



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While the two-year delay of the Cadillac tax until 2020 may slow growth in private exchanges, most experts maintain that enrollment in such exchanges will continue its upward trek.

The Cadillac tax, which is the 40% excise tax on the portion of group health plan premiums that exceed $10,200 for single coverage and $27,500 for family coverage now effective in 2020, has been seen by many as a driver of private exchange growth as employers look for ways to keep below the tax's thresholds to avoid hefty penalties.

For those employers offering rich plans likely to trigger the tax, private exchanges offered one answer by helping to ensure predictability in costs through a defined contribution model, while also offering employees more choice in benefits and transparency in price, sources say.

As the Cadillac tax neared, some experts predicted there would be a surge in private exchange enrollment. With a two-year delay, that's unlikely to happen, some say.

“The Cadillac tax itself was a driver for people to drop the more expensive health plans, and therefore … it was considered to be a driver to a private exchange, but frankly, given that it's delayed now, I would say if anything the growth that you were expecting from that is not probably going to be there,” said Jay Godla, Chicago-based partner with PricewaterhouseCoopers L.L.C., which doesn't operate an exchange.

The delay “will have an impact in that spike and delay some of the need for these employers to accelerate and modify their benefits strategies for the (2018) year,” said Scott Brown, a managing director for consulting firm Accenture L.L.C.'s private health exchange offerings, referring to a “spike” in enrollment Accenture previously predicted would occur in 2017 that as employers scrambled to avoid Cadillac tax penalties.

Even so, employers will continue looking for ways to “stabilize their health care costs,” Mr. Brown said.

And the Cadillac tax delay — or even a repeal down the road — is unlikely to thwart the continued growth experienced by private exchanges, benefits experts say.

Accenture reported last week that about 8 million people enrolled in private health insurance exchanges for 2016, up 33% from 6 million in 2015.

It's slower than growth experienced the previous year when private exchange enrollment ballooned by 100% from 3 million to 6 million, according to Accenture.

Part of that deceleration, Mr. Brown said, is related to large employers who “continue to sit on the sidelines” as they wait to see if greater value can be offered to them via exchanges.

Exchange growth steady

But large benefits firms with their own major exchanges say enrollment is increasing steadily.

Enrollment in Willis Towers Watson P.L.C.'s OneExchange grew 60% to 1.17 million people in 2015, up from 730,000 in 2014.

Ben Pajak, strategy lead for OneExchange in Stamford, Connecticut, assured the Cadillac tax delay would have “little to no impact” on enrollment in the exchange.

View Business Insurance's Private Health Exchange Data & Research page

Norwalk, Connecticut-based Eric Grossman, Mercer L.L.C.'s active exchange leader, said he has yet to see any reduction in interest or demand due to the Cadillac tax delay as well. Mercer's exchange enrollment rose 41% to 1.47 million in 2015 from 1.04 million the previous year.

And Aon Hewitt's exchanges saw a 60% jump in enrollment in 2015 to 1.2 million enrollees, up from 750,000 the year before. Mike Christie, head of Aon Hewitt exchange market strategy in Chicago, said enrollment has now reached 1.4 million people and 150 employer clients.

“There have been moments in time where really high profile companies have chosen to be public” about going to a private exchange, “and that has created this perception of either higher or lower growth,” Mr. Christie said. “But actually under the surface, behind the scenes, I would say the growth has been and remains steady.”

He added, “We see it continuing to be as it's been.”