Cadillac Tax Delay: Why You Should Still Act Now

Even though the Cadillac Tax has been delayed by two years to 2020; schools, cities, and counties still need take measures now to decrease the overall costs of their health plans. The Cadillac Tax is a 40% excise tax that will be imposed on high cost employer-sponsored health coverage that exceeds predetermined threshold amounts (including contributions to Flexible Spending Accounts, Health Reimbursement Arrangements and Health Savings Accounts). Current thresholds are $10,200 for individuals and $27,500 for families (high-risk professions will have higher limits).

With the tax being unpopular among employers, unions and across the political realm, some hope that with the delay provides the opportunity for repeal. However, the Congressional Budget Office has projected that the tax will generate about $90 billion in revenue. If it was repealed, tax revenue would need to be found from another source. Time will tell if any changes will be made.

Because of the initial 2018 deadline, some employers have already been working on implementing changes designed to lower their costs. These employers have welcomed the additional time to make adjustments. It may be best to follow suit as taking a wait and see approach until its new implementation in 2020 is ill-advised.

The worst thing an employer can do is introduce a big change right before the tax takes effect. The changes organizations will be forced to make will require people to change – not only change their purchasing behavior, but also to adopt a new mindset. By reviewing benefit offerings now, employers have time to align and educate everyone (employees, unions, committees, etc.) on the implications of the tax and then gradually adjust the plan so that employees are eased into the change. Experts agree that delaying changes now will cause problems later on, regardless of what the future holds for the new tax.

Here are 5 ways that employers can begin to reduce their health care costs and in turn, help to lower premiums (or at least slow down the upward trend):

1. Encourage medical consumerism: Schools, cities and counties everywhere are switching to High-Deductible Health plans and providing a HSA or HRA to encourage medical consumerism. These transitions help empower employees to improve their decision-making skills when purchasing health care services and prescriptions.
2. Explore self-funding: Switching to self-funding can provide your organization with plan design freedom, tax savings, lower administrative costs and better cash flow, even for small employers.
3. Provide early retirees with health insurance alternatives: Retirees have more options now with the Affordable Care Act then just choosing to stay on the employer-sponsored plan. Some employers use a Retiree-Only HRA to help retires pay for insurance premiums and other eligible medical expenses when choosing a non-employer sponsored plan.
4. Wellness: Employers have adopted employee wellness initiatives aimed at encouraging preventative care and healthy lifestyles by incentivize workers to get checkups, join gyms, quit smoking or achieve other similar feats. According to Proof Positive: An Analysis of the Cost-Effectiveness of Worksite Wellness, investing in prevention and wellness can lower health costs by 26.5%.[1]
5. On-site/near-site clinic: Employees can receive free or reduced cost services (short-term treatment for minor injuries or illnesses, lab work, pharmacy, etc.) right at or near their worksite with a clinic. Study after study shows that providing these services onsite reduces cost for BOTH employers and employees.

For more information about reducing costs, read our whitepaper, Health Insurance Rx.

[1] According to Corporate Wellness Magazine article, “Wellness ROI: A Big Business”