The Cadillac tax is a lightning rod of the Affordable Care Act. Since its introduction, the tax has been hotly debated, revised and now faces possible repeal. First, it’s important to understand what the Cadillac tax is exactly. Unsurprisingly, given its luxury evoking namesake, it’s a 40 percent excise tax planned to be levied beginning 2018 on high-cost health plans with annual premiums over $10,200 for individuals or $27,500 for families. In this two-part series, we’ll explore relevant definitions and the realities and potential impact of the Cadillac tax, as well as the ways in which private health insurance exchanges could be an answer to offset the Cadillac tax.
Several groups are researching the potential impacts of this upcoming tax. And, while current opinions vary, there’s a wealth of data pointing to likely downsides of the tax. A study conducted by the American Health Policy Institute in December 2014 stated that the tax is anticipated to hit 17 percent of all American businesses, and 38 percent of large employers. Because the threshold for the tax is calculated using Consumer Price Index growth and not medical inflation, the study states that by 2031, what are considered average family plans now, maybe subject to the 40 percent tax, further expanding the impact of this legislation. Many independent organizations, like the Kaiser Family Foundation, are exploring similar eventualities, in part, questioning whether this is really a tax on luxury or is instead a looming burden on average employers and consumers.
If the tax moves forward as planned, those potentially affected, including insurers and employers, will need to make preparations quickly, laying sound groundwork prior to the law going into effect, to ensure minimal disruption to their businesses. They will need to contemplate how the tax will affect their budgets and consider the steps they can take to minimize its impact, including possibly reducing employee benefits; however, this is only one path for savings – and one that may carry unintended consequences.
At GetInsured, we believe one of the best solutions to mitigate the tax’s impact, and cut costs for stakeholders in the health insurance value chain, is a private exchange. Private exchanges reduce confusion for members and limit cumbersome administrative costs related to member onboarding, maintenance and enrollment. Our recent Health Check survey found that more that 52 percent of insurers have seen a reduction in administrative costs, while 48 percent have increased their market share. As private exchanges increase in popularity, and approximations around enrollments by year become more accurate, these calculable administrative benefits are starting to gain recognition in insurer and employer communities – Accenture projects, 40 million people will be enrolled through private exchanges by 2018.
As 2018 looms, there are silver linings to the projected tax, as well as avenues to mitigate costs and grow business. Leveraging a private exchange could mean allowing employers to control costs, while allowing employees to choose from a wide selection of plans, helping them better personalize their experience, empowering them to take their healthcare more personally. In the second part of this series, we’ll explore how consumer engagement, consumer-directed health plans and ultimately private exchanges make good business sense, not only in anticipation of the tax, but for the long-term in an industry where regulatory change is the norm and insurers and employers need to be secure and agile.
To learn more about this topic, read our article Taxing “luxury:” Preparing for the Cadillac tax with a private exchange at HIT Leaders & News.
