When a High Cost Plan is Not High Cost 

We collect a lot of data in Mercer’s National Survey of Employer-Sponsored Health Plans (as those of you who have taken the survey well know — sorry and thank you!), but each year the number we look at first and most closely is the average annual health plan cost per employee. After almost 30 years of studying health benefit cost, we’ve found there are certain trends so predictable that you don’t even think about them anymore. For example, average cost will always be lowest in the South and highest in the Northeast or West. If it’s not, check your work — you’ve mislabeled the data.

That’s why we worried about the so-called “Cadillac tax” from the beginning. It was clear to us that factors other than a rich plan design affect plan cost. Geographic location is one, but employers with older workforces also have higher cost. (Our survey doesn’t ask employers about the health risks in their populations, but in general, older people use more health care.) In addition, per-employee cost rises when more employees elect dependent coverage. This graph shows the 2014 average cost per employee for large employers — $11,641 — and how it varies based on location, employee age, and dependent coverage election.

To find out how many employers were at risk of hitting the tax threshold, we asked last year’s survey respondents to provide premiums for their highest-cost medical plan. We didn’t attempt to include other costs that might go into the calculation, like FSA contributions or onsite medical clinics We trended that number forward and compared it to the excise tax threshold and found that, based on medical plan cost alone, about a third were likely to reach the cost threshold in 2018. We then compared this group of “high-cost” plans to the rest in terms of plan design and demographics. If these were truly “Cadillac” plans, employers would have plenty of room to shift costs to employees to keep plans from hitting the tax threshold. But what we found is that while employers with the high-cost plans do have somewhat higher deductibles on average, it’s far from night and day.

Among the small, mostly fully insured, employers with plans on track to hit the threshold in 2018, the average individual in-network PPO deductible is already over $1,000. Among the large employers with “high-cost” plans, the average deductible is $640. But it’s not that much higher — only $712 — among the rest.

* Plan cost estimated to hit threshold by 2018

Source: Mercer’s National Survey of Employer Sponsored Health Plans, 2015

So what else is different about these two employer groups? Not average salary — it’s about the same. The high-cost employer group has an older workforce. They cover more dependents. And they are also more likely to have more employees in unions. Union leaders have worked hard over the years to keep relatively rich health benefits as part of their workers’ total compensation package — but unions also tend to have older workers with more dependents.

That’s why you won’t ever catch me using the term “Cadillac tax” — because it’s not.