Increasing Excise Tax: Employers Consider Private Exchanges | Mercer US

One More Reason to Consider a Private Exchange

Our Thinking / Healthcare /

One More Reason to Consider a Private Exchange
Calendar14 October 2015

The looming excise tax is getting a lot of attention from employers — as it should. Based on their current plan costs, about one-third of employers are likely to become subject to the excise tax in 2018 when it first goes into effect, with many to follow in subsequent years. Without assertive action, it’s not a question of “if” plans will become subject to the excise tax, but “when.”

With a nondeductible tax of 40% applicable to plan costs above threshold amounts that generally start at $10,200 for single coverage and $27,500 for family coverage in 2018, the tax could have a significant impact on employers and their plan members.

Fortunately there are a number of strategies employers can use to mitigate excise tax exposure. One highly effective strategy is to introduce a private exchange such as Mercer Marketplace™. Employer experience with Mercer Marketplace since 2014 shows clearly how it can help minimize excise tax risk.

About 60% of employees choose lower-cost consumer-directed health plans on Mercer Marketplace. These plans cost less than traditional PPOs and increase at a slower rate than the overall health plan market. Growth in enrollment in CDHPs reduces the number of employees enrolled in more expensive plans that will be subject to the tax. Outside of Mercer Marketplace, however, achieving high CDHP enrollment has been a challenge. Mercer’s most recent survey of employer-sponsored health plans found that only about 25% of employees choose to enroll in the CDHP. One reason that Mercer Marketplace members are more likely to select a CDHP is that our platform transforms the enrollment experience into a consumer purchasing experience offering decision-support tools that help people figure out how much insurance they really need.

On Mercer Marketplace, year-over year costs from 2014 to 2015 rose by an average of 1.5%, without plan changes. This compares to an overall average market increase of 4.6% — after employers made plan changes worth 2%–3% of plan cost.

The combination of strong enrollment in lower-cost plans and overall plan cost increases below the market average make the Mercer Marketplace private exchange a strong strategy to consider for many reasons — and certainly for excise tax risk mitigation.

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