Cadillac Tax Delayed Two Years: 5 Things You Need to Know
January 19th, 2016
Late last month, as many of us finished up holiday gift buying, Congress offered up a gift of its own: Lawmakers passed a bipartisan funding bill to keep the federal government open, including a provision to put a two-year delay on the Cadillac tax under the Affordable Care Act (ACA).
The tax, originally set to go into effect in 2018, places a 40% levy on high-cost employer-sponsored health plans ($10,200 for individuals, $27,500 for families). It’s hugely unpopular among politicians, employers, insurance carriers—pretty much everyone except economists—so delaying it until 2020 easily won congressional support.
It’ll now be up to a new Congress and a new president to decide the Cadillac tax’s fate. In the meantime, though, there are five important things for employers to know:
- The tax is still part of the law. The delay is a big win for employers, for sure. It’s also important to note that none of the major presidential candidates support the Cadillac tax. However, until it’s repealed altogether, employers should stay tuned and continue to draw plan designs accordingly so they can be ready to comply.
- The delay doesn’t modify the Cadillac tax inflation-rate cap. That cap is still in place and increases at the average inflation rate—not the health care inflation rate. So, if the tax is ultimately implemented, more employer plans will be affected in 2020 than would have been in 2018. Employers who execute plans now to avoid the tax (using the strategies below, for example) will benefit from an additional two years of lower health plan costs.
- There are concrete steps employers can take to reduce potential Cadillac tax exposure. As we discussed in our recent webinar, there are several ways employers can lessen the bite of the Cadillac tax and mitigate the growth in health plan costs—most notably, modifying plan designs to increase consumerism and reduce costs. Consumer-driven plans have a track record of slowing cost trends by increasing employees’ engagement in their health and health-care purchasing decisions.
- Emerging strategies can reduce inefficiencies, in addition to costs. Delaying the Cadillac tax gives employers valuable breathing room to consider shifting toward tiered networks that reward employees for selecting higher-quality and more cost-efficient providers. For example, leveraging accountable care organizations (ACOs) is a newer approach to improving quality of care while containing costs, similar to the more familiar strategy of promoting Centers of Excellence.
- Helping employees help themselves has the longest shelf life and arguably the best outcomes. Again, this two-year delay offers the gift of time to better educate employees about choosing a plan that best fits their needs—and spending their health care dollars in their own best interest. Deploying a decision support solution to help employees pick a plan, shifting to a lower-cost defined contribution approach to encourage employees to spend an employer health insurance as their own, and investing in population health all are key steps that employers have more time to explore and implement.
Getting started on these strategies sooner than later will help employers be prepared, regardless of what the future may hold for the Cadillac tax, ACA and the health care market in general.