Employers Running Out of Time in Dealing with the Cadillac Tax
By Bruce Davis
January 17, 2018
Despite significant lobbying by the American Benefits Council and other employer advocates, Congress did not include a repeal of the Cadillac Tax in the Tax Cuts and Jobs Act; therefore, the Cadillac Tax is still alive and scheduled to take effect January 1, 2020.
While there has been bipartisan support to repeal the Cadillac Tax, Congress has yet to act. In fact, Congress appears to have moved in the opposite direction by promulgating the Consumer Price Index for All Urban Consumers (CPI-U) as the indexing method to be used for taxes—including the 40% Cadillac Tax threshold.
In its December 2017, report The Bureau of Labor Statistics indicated CPI-U rose 2.1% over the last 12 months before seasonal adjustment. This means CPI-U will continue to lag far behind annual medical and Rx trend rates. For example, in our claims forecasts and funding projections for 2018, we commonly used 7%–8% for medical and 9%–10% for Rx (recognizing the impact of high-cost specialty drugs). Therefore, as health care trend outpaces CPI-U, most employer plans will eventually trigger the Cadillac Tax thresholds after 2020. This includes high deductible health plans paired with HSAs because the current rules require that both employer and employee pretax contributions to the HSA count toward the Cadillac Tax threshold.
There was some optimism that Congress would attach a Cadillac Tax repeal to a new budget bill. However, given the recent deteriorating relations amongst the White House, Republicans and Democrats over DACA and a looming federal government shutdown, the prospect of a repeal has dimmed. The apparent inability of Congress to deliver relief from the Cadillac Tax, either through an outright repeal or another delay, means employers are literally running out of time to develop and execute new plans that will ensure their plans’ values will not trip the Cadillac Tax.
Examples abound. Self-funded employers hoping to make material changes to their plans effective January 1, 2019, including competitively bidding network and TPA arrangements, have already begun that process and intend to make decisions by midyear in order to have time to implement changes, including establishing connectivity with new PBMs to ensure maximum out-of-pocket (MOOP) features work correctly. Employers with collective bargaining agreements that will not expire until later in 2018 or 2019, will face challenges in negotiating and implementing changes in their health plans by January 1, 2020 to keep their plans’ gross costs from triggering the Cadillac Tax.
Findley Davies | BPS&M is ready to help employers—and their unions if necessary—evaluate and implement changes that will mitigate Cadillac Taxes. Our services include building and delivering customized, interactive modeling tools that demonstrate the impact on a plan’s gross and net costs under sponsor-defined benefit and contribution structures. The tools allow for variable trend assumptions, thus showing when the plan’s gross costs are expected to intersect with the Tax threshold. We can also facilitate a RFP process to evaluate new provider networks (including ACOs), TPAs, and PBMs through analysis of provider disruption, claims repricing, and expected total costs.
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