As a final entry in our excise tax series, we wanted to share an analysis that shows why the excise tax has been, from the beginning, the provision of the ACA that has caused employers the most heartburn — and why it will take creative strategies like those described in the Excise Tax Survival Kit to avoid it in 2018 and beyond.
In earlier posts, we’ve demonstrated that health plan costs vary widely by geographic region and workforce demographics (as plan sponsors know all too well), and argued that the excise tax will put undue burden on employers in higher-cost areas of the country and on those with less-healthy workforce populations. Based on premium costs provided in Mercer’s 2014 National Survey of Employer-Sponsored Health Plans, we’ve estimated that a third of large employers (those with 500 or more employees) have at least one plan whose cost will exceed the excise tax threshold in 2018 if they make no changes. Because of the way the excise tax threshold is indexed, the percentage of employers at risk will rise every year that medical inflation exceeds the general CPI — which, based on past history, is every year. So no employer can afford to be cavalier about the tax.
But what do these high-cost plans look like? Are they really the overly rich plans that economists argue have led to inefficient usage of medical services and increased health costs?
It depends on how you define “overly rich.” It makes sense that the richest plan on the public exchange — the “Platinum” plan — would be the type of plan targeted by the excise tax. But, taking a deeper dive into our survey data, we find that fewer than a third of those employer-sponsored plans estimated to exceed the excise tax in 2018 have an actuarial value (AV) of 90% or higher, the definition of a Platinum plan. So are Gold plans considered excessive as well? About half of the high-cost plans in our analysis have a Gold level AV of 80%. But 15% are Silver level plans (AV of 70%), and 7% are actually Bronze (AV below 70%).
On the public exchanges, Silver plans are the marketplace standard, accounting for 68% of enrollment as of June.1 These plans are also the basis for determining cost-sharing reduction subsidies on the exchanges, and yet, under employer-sponsored coverage, many of these same plans will be deemed “high cost” and subject to the excise tax.
A recent release from the Council of Economic Advisers Chairman Jason Furman argues that the “very high thresholds” of the excise tax will ensure that the tax applies only to those very rich “Cadillac” plans and not “typical ‘Chevy’ plans.” But it’s not just the Platinum or Gold level plans that will be impacted; even some Bronze level plans are at risk for exceeding the tax threshold in 2018. Forget Chevy, you could be paying out for your ’96 Geo!
In our comments to the Treasury Department, we suggested that focusing solely on cost as a measure of health plan value may unfairly tax some groups, and that actuarial value might be a more fair measure. We won’t know whether the provision will be revised until 2016 at the earliest. Given that, our advice to employers is to carefully consider the strategies with the potential both to position you for long-term cost management and strengthen your value proposition. That way, you’ll come out ahead whatever the outcome of this debate.
Emily Ferreira assisted with data analysis and the preparation of this post.
1 Kaiser Family Foundation analysis of June 30, 2015 Effectuated Enrollment Snapshot, Centers for Medicaid and Medicare Services (CMS), accessed September 8, 2015.