Time flies. We can finally see the light at the end of the tunnel for ACA compliance. But the last ACA requirement poses the biggest challenges for most employers, and that’s (drum roll) the excise tax slated to go into effect in 2018. Since today is the deadline for the second round of comment letters to the IRS, we thought it would be timely to kick off a series of posts on this important topic. What will follow over the coming days are pieces written by Mercer colleagues with a broad range of expertise, focusing on tax-avoidance strategies and how the excise tax may affect other HR and business objectives.
So how big of a deal is the excise tax for employers? In a webcast that we hosted last week, we posed several questions to employers in an exit survey. Roughly half (52%) of the 100 attendees who took the poll told us they will need to make changes to their current medical plans to avoid the tax in 2018. And remember that health benefit cost rises faster than the excise tax threshold, so even employers that can get by in 2018 will probably need to make changes at some point to avoid the tax.
We asked another question that has important implications for policymakers as well as employers: When employers make changes to their plans that save money, what will they do with the savings? Government projections for revenue stemming from the excise tax are based on the assumption that employers will return a good portion of the savings to employees in their paychecks. Our poll suggests otherwise. Only 5% of respondents said they planned to increase employee compensation. Granted, about half of the respondents had not made changes yet, but even if you double those planning to increase compensation, you only get to about 10%. Employers with savings were more inclined to add health-related benefits not subject to the tax, or to add to the 401(k) match. While we make no claims that this “quick and dirty” survey is at all representative, the results line up with what a lot of us have been hearing from our clients.
One thing we know for sure, employers want the excise tax repealed. Here at Mercer, we are doing our part to support your interests. We joined the Alliance to Fight the 40, a broad-based coalition comprising public- and private-sector employer organizations, unions, health care companies, businesses, and other stakeholders that support employer-sponsored health coverage. In addition, we are frequently invited to Capitol Hill and various branches of the government — HHS, DOL, and Treasury/IRS — to share our survey data and represent employers’ perspectives. And, in the event that repeal efforts fail, we are active in the effort to shape the regulations on the excise tax that would make it more friendly to employers and their workers. Mercer has responded to both of the Treasury’s requests for comments on the tax.
To get this series started, Geoff Manville will provide an “inside the beltway” view of what is happening with the repeal efforts, and Beth Umland will share some interesting data on why we don’t really think it is a “Cadillac” tax. You will be able to identify the pieces in this series by the picture above. For those of you who have not been to Washington, DC, since your high-school field trip here, the picture is of the Treasury Building, right next door to the White House. Enjoy the series!