Looming 'Cadillac tax' complicates open enrollmentReprints
As the 2016 open enrollment season for group health plans nears, benefits managers are implementing strategies or stepping up existing ones to avoid the looming federal excise, or “Cadillac,” tax.
It's the “overriding concern for most employers” leading up to open enrollment, said Steve Wojcik, vice president of public policy with the National Business Group on Health in Washington.
The Cadillac tax — the health care reform law's 40% excise tax on the portion of health plan premiums that exceed $10,200 for single coverage and $27,500 for family coverage — takes effect in 2018, but benefits consultants say this year is the last chance employers have to make major plan design changes or other tweaks to avoid hitting the thresholds.
“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 it in "16.”
To avoid the tax, employers are moving to consumer-driven health plans, introducing consumerism tools that help workers shop for health care and sometimes shifting to narrower health plan networks with fewer providers, experts say.
“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.”
Employers who are ahead of the game when it comes to avoiding the tax are putting a greater emphasis on wellness.
“This open enrollment season, you'll see even more employers tying employee contributions and what you pay out of your paycheck for health benefits into the new year to your participation ... in the company wellness program,” said Jim O'Connor, Manasquan, New Jersey-based president of employee benefits with CBIZ Inc.
For instance, the Society of Human Resource Management Inc. “saw the writing on the wall” and in 2011 set a glide path to keep under the Cadillac tax thresholds, said Bruce Elliott, SHRM's manager of compensation and benefits in Washington.
Beginning in 2011, SHRM began making incremental changes in its health plans, using incentives to migrate employees away from the preferred provider organization plan and into one of two high-deductible plans: the health reimbursement arrangement and the health savings account.
Today, 75% of the workforce is enrolled in the HRA or HSA plans, Mr. Elliott said.
Now the organization is focusing on wellness. “Our wellness programs have been fairly effective to the extent that we are not going to do an increase this year” in health plan costs, Mr. Elliott said.
But the Cadillac tax is still a big concern, because it's tied to general inflation rather than medical inflation. According to an August NBGH study, general inflation is expected to grow at 2.4% over the next decade, while most employers expect health plan costs to increase an average of 5% in 2016.
“Eventually we will get caught up by it. It's just a function of math,” Mr. Elliott said, adding that beyond 2018, SHRM may have to make additional plan changes or eliminate the PPO.
Another “front and center” concern for employers this season is being in compliance with the Patient Protection and Affordable Care Act “across the board,” said Wally Dawson, Raleigh, North Carolina-based managing principal with Digital Benefit Advisors.
Benefits managers are working to keep within the affordability thresholds for offering health insurance coverage and providing more than the minimum value required by the Affordable Care Act. Under the ACA, 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.
Besides this, the reporting required by the IRS, which was a dominant concern for employers during open enrollment last year when they had to identify the full-time employees subject to coverage, remains a factor.
“I would say (the IRS reporting concern) is even bigger this year than last year because this will be the first year (employers) actually have to distribute the documentation,” Mr. O'Connor said.
The ACA requires that employers and individuals submit forms to the IRS detailing the health coverage offered by the employer.
“There's a massive amount of data coordination that has to take place in order to get these reports completed and submitted to employees by the Feb. 1 deadline,” said Ben Conley, Chicago-based employee benefits attorney with Seyfarth Shaw L.L.P.
Many employers also feel responsible for educating employees on what they need to do regarding the unfamiliar IRS forms, he said.
Victoria Nolan, risk and benefits manager with Hillsboro, Oregon-based Clean Water Services, said the IRS reporting requirements are her biggest concern.
Not only does Clean Water Services' payroll software need to be modified to hold the needed data, which the benefits team has to enter, but “we're having to take the time to educate the employees what these forms are because ... most employees that you talk with don't have a clue what they're supposed to do with them.”
With all the changes being introduced by employers and the Affordable Care Act, benefits experts say thorough communication with workers is essential.
Employers must make sure “employees are paying attention and understand the magnitude of change that might be happening in their employer's benefit plan this year,” said Sandy Ageloff, U.S. West leader in Towers Watson & Co.'s health and group benefits practice.
“Communication is so much more critical today than it's ever been,” Segal Group's Mr. Moroni said. “It's a matter or laying out the strategy and showing (employees), "OK, here's why this plan isn't going to exist. Here's why this plan is really good for this segment of the people.' I think it's a great place in a lot of ways because of the whole communication effort.”