Managed Care Outlook

CDHP offerings tied to fate of the Cadillac Tax

The number of large employers steering their employees into consumer-directed health plans (CDHPs) isn’t changing very much. But if the ACA’s “Cadillac Tax” goes into effect as planned, that may start to change as employers look for ways to nudge costs below the level where the tax kicks in.

Starting in 2018, a 40% excise tax will be assessed on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for family coverage). So, for example, if family coverage costs $30,000, the Cadillac Tax would be $1,000 (0.4 x $2,500). The Congressional Budget Office has estimated that the tax will bring in $87 billion in revenue from 2016 to 2025, a tidy sum but a fraction of the $1.7 trillion in ACA-related expenses for that period.

If Congress doesn’t repeal the Cadillac Tax, “we believe more employers will adopt a CDHP strategy in the coming years,” the National Business Group on Health says in its “2016 Health Plan Design Survey: Reducing Costs While Looking to the Future.”

Employers shift from making CDHPs 1 of many choices, to making them the only choice*

*Not shown: The number of employers offering a CDHP either as a choice or as the only option is expected to grow from 73% in 2012 to 83% in 2016.

Next year, 33% of the employers who answered the survey said they will make a CDHP their only insurance option, and 50% said a CDHP is among the health plans that their employees will be able to choose from.

Meanwhile, a CDC survey found that 13.3% of Americans under the age of 65 are now in a CDHP, compared with 7.7% five years ago. The CDC defined a CDHP as a high-deductible plan that comes with an HSA, HRA, or some other account for paying medical expenses.

Nearly half of the 140 large employers surveyed by the business group say that at least one of their health plans will exceed the Cadillac Tax threshold in 2018 if they do not make any changes to their packages. With the Cadillac Tax threshold set to general inflation, rather than medical inflation, the concern is that all plans—not just those deemed the Cadillacs of health care coverage—will end up having to pay the excise tax at some point.

When benefit packages would hit the Cadillac Tax if employers were to make no changes

*48% of employers in 2018 would face the excise tax for at least 1 plan; 26% would face it in 2018 for their most popular plan. By 2027, 95% of employers expect 1 plan to be affected and 91% expect the most popular will be.

Source: National Business Group on Health, “2016 Health Plan Design Survey: Reducing Costs While Looking to the Future,” August 2015.

2015: Top 3 planned actions to minimize the Cadillac Tax

  • Add or expand tools to encourage plan participants to be better consumers.
  • Implement or expand account based CDHPs.
  • Add or expand incentives to engage employees in wellness programs.

2017: Top 3 planned actions to minimize the Cadillac Tax

  • Add or expand high performance networks, ACOs or other delivery mode.
  • Eliminate high-cost plans.
  • Reduce richness of plans.

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