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‘Cadillac Tax’ is Expected to Drive Up Healthcare Costs, Survey Finds

May 21st 2015
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According to a new independent survey by the International Foundation of Employee Benefit Plans (IFEBP), a Wisconsin-based not-for-profit organization, employers expect Affordable Care Act costs to increase even more next year and beyond.

The study points to the so-called Cadillac tax as the “driving force” behind the increase.

The IFEBP survey shows that 33 percent of respondents expect the biggest bump under the healthcare law, known as Obamacare, to occur in 2016 when the employer mandate to provide health insurance officially kicks in. In comparison, 27 percent are predicting that the largest increase will occur in 2018, the year the Cadillac tax goes into effect.

The impending Cadillac tax was cited by 20 percent of respondents as the main reason costs are expected to increase, followed by general administrative costs (19 percent) and costs associated with reporting, disclosure, and notification requirements (13 percent).

“Employers need to devote significant time and energy to maintain compliance with the law,” Julie Stich, CEBS, director of research at the IFEBP, said in a written statement. “The extensive amounts of data that employers are required to collect can take hours of manpower and even require complex IT infrastructures. The process has meant a cost increase for many, especially smaller organizations.”

The term “Cadillac tax” is used to describe high-cost health insurance plans with top-of-the-line benefits. Under Obamacare, employers will be required to pay an excise tax on a plan costing more than $10,200 for an individual or $27,500 for a family. The tax is equal to 40 percent of the cost of premiums above these thresholds. The Cadillac plan thresholds will be indexed for inflation after 2018.

With the change for Cadillac plans looming in a few years, the vast majority of the employers surveyed – 71 percent, to be exact – believe that the worst is yet to come. But the healthcare law is already having an impact. The IFEBP says 82 percent of employers expect their costs to go up this year, ranging from about 1 percent to 6 percent higher.

“Interestingly, we have seen a trend of employers continually anticipating the worst, where each upcoming year looms with the largest costs. In 2014, the majority felt 2015 would bring the largest costs. In 2015, 2016 seems to be the worst,” commented Stich.

What are employers doing to control costs? According to the survey, a significant number are relying on high-deductible health plans (HDHPs) to help stem the tide. Forty-two percent say they have or are considering an HDHP with a health savings account, 13 percent have an HDHP with a health reimbursement arrangement, and 11 percent have an HDHP with no account. Almost one out of every 10 employers have adopted a full-replacement HDHP in the wake of Obamacare, and 19 percent more are contemplating this move.

One wild card in the scenario is the outcome of a case currently being reviewed by the US Supreme Court. In King v. Burwell, the key issue presented is whether the health insurance marketplace can grant premium tax credits under Obamacare. Without the credits, millions of taxpayers can't afford health insurance, posing a major threat to the law's survival. The nation's top court is expected to hand down its ruling in June.

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