08 Apr Private Exchanges May Offer Shelter from Cadillac Tax

Originally posted April 03, 2014 by Allen Greenberg on https://www.benefitspro.com

COLORADO SPRINGS, Colo. – Avoiding, or at least putting off, the so-called Cadillac tax in the Patient Protection and Affordable Care Act is on a lot of employers’ minds.

Speaking Wednesday at the 2014 Benefits Selling Expo, William Stuart, a lead consultant at Wellesley, Mass.-based Harvard Pilgrim Health Care, suggested that one of the best ways to do so is by moving employees to one of the burgeoning number of private insurance exchanges.

That alone won’t do the trick, he said, but shifting to an exchange can help “reset the premium base” and “bend the cost curve” – the two things necessary if employers hope to postpone the pain of the excise tax.

The tax – meant to raise money to offset the government’s subsidies to lower-income individuals and families buying insurance under the PPACA – goes into effect in 2018. It is a 40-percent penalty on premium dollars above $10,200 for individuals and $27,500 for families.

“This tax is probably not going to go away,” Stuart said. “It might. But we can’t base our strategy on what may or may not happen.”

The premium levels at which the tax is calculated, he said, will include medical premiums, health flexible spending arrangement elections, health reimbursement arrangements and employer contribution to HSAs. “In other words,” he said, “the law has taken some tools (for reducing or putting off the tax) off the table.”

But options do exist, he said, and the sooner employers act, the better, meaning the later the tax will impact them.

Stuart said brokers should consider encouraging their clients to establish wellness programs. The return on investment is often difficult to gauge on wellness, he noted, but a healthier workforce tends to mean fewer health problems, which helps bend the cost curve.

A narrower provider network can also help, he said, especially one that might exclude teaching hospitals where costs tend to be higher.

Stuart acknowledged people prefer all kinds of choices in which doctors they see or which hospital they might use. But that fades once they realize they can save up to 25 percent of their costs.

Health savings accounts, meanwhile, are another option for employers looking to reduce costs, because they encourage employees to be more careful with their health care dollars.

In the end, however, private exchanges may yield the most dramatic results, Stuart said.

Among their advantages: an array of health plans offering in some cases as much as a 40-percent spread in premium costs.

Once in an exchange, the employee mindset shifts to saving money, rather than simply buying without shopping. People, Stuart said, tend to buy down in an exchange once they realize they might have been over-insured. This, too, helps reset the base.

Aon Hewitt, the large employee benefits consultancy, which last year launched its Aon Hewitt Corporate Health Exchange, recently said the average cost increase for three fully insured large companies in its exchange was 5.1 percent.

By comparison, average cost increases for large U.S. employers are projected to be between 6 and 7 percent in 2014, according to Aon Hewitt’s annual cost trend data report.