The Truven Health Blog

The latest healthcare topics from a trusted, proven, and unbiased source.

 

Will Your Benefit Plan(s) Trigger ACA’s “Cadillac” Tax? Start Planning Today.

By Truven Staff
A recent Wall Street Journal blog outlined the efforts some CFOs are taking to prepare for the ACA’s so-called “Cadillac Tax” provision.  But is it enough? A survey from Aon Hewitt found that a quarter of employers have not yet determined the impact of the “Cadillac” tax on their benefit plans, and more than one-third reported that their executive leadership and finance teams have limited or no knowledge of the implications of the tax for their organizations.

It’s critical to effective planning for budgeting, collective bargaining, and benefit strategy that employers understand which plans — current and future — are likely to incur the tax and when each plan’s costs may be likely to cross the excise thresholds. The earlier employers can quantify the impact of the tax, the sooner plans can be put into place to mitigate or defray the expense.

According to Truven Health Analytics latest research,* which analyzed recent MarketScan® claims data* for more than 13 million active employees, non-Medicare retirees, and their families in more than 2,500 self-funded plans to identify real-world healthcare spending trends, 15% of active employee plans are projected to incur the tax upon its activation in 2018, and by 2020, more than 19% of plans are expected to incur the tax. We estimate the tax would result in a cost increase of up to $480 per employee per year (PEPY) for plans expected to incur the tax.

Our study also found that early retiree plans are projected to exceed the statutory thresholds at a much higher rate than active employee plans. Eighty-one percent of early retiree plans for U.S. employers are likely to incur the “Cadillac” tax, and this rate is projected to increase to 84% by 2020. For the plans that we’ve projected will be impacted by the “Cadillac” tax, there will be an annual increase of $1,609 PEPY, or 6.8% of total costs.

We conducted similar research for industry groups such as health systems, universities, and public employers, and these analyses revealed that nearly 40% of active employee plans for health systems and more than 25% of active employee plans for universities in this study are projected to incur the “Cadillac” tax by 2020.

By implementing a combination of benefit design changes, premium contribution alterations, and health risk interventions, you can mitigate the impact of this new tax in 2018 and beyond. Early awareness is key. For more information on the effects of the Cadillac Tax, read our research brief. And contact us to learn how our modeling tools can help. 


Tom Halvorson
Director, Practice Leadership


*The study was executed using data from the Truven Health MarketScan® Commercial Claims and Encounters Research Databases, which consists of medical and drug data from employers and health plans. It contains data for more than 59.9 million individuals annually, encompassing employees, their spouses, and dependents who are covered by employer-sponsored private health insurance.



Employers and Health Plans Need Modeling Solutions for Pay or Play Decision Making

By Truven Staff

Without much fanfare, the Department of Health and Human Services (HHS) opened the Small Business Health Options Program (SHOP) marketplace in five states last week after a year-long delay. HHS did this soft launch as a test before rolling out the SHOP to most of the rest of the country by on November 15. Although the action was quiet, make no mistake: this is big news for small employers and the health plans that serve them. Employers are once again faced with the tough decision on whether to continue offering benefits. And health plans have much to gain or lose in this process.

When it comes to Pay or Play decisions, health plans are also at risk, because employer decisions about this Affordable Care Act (ACA) provision will have a far-reaching impact on their business. There are billions of premium dollars at stake, potential shifts in health status, and the significant challenge of managing the Medical Loss Ratio requirements. 

Any Pay or Play decisions must be approached by measuring the impact of continuing to offer group health benefits and complying with legislative mandates (Play) or exiting group health and paying the noncompliance penalty (Pay). Modeling should project the effect of the ACA regulations on employer health plan costs for 2014-2020, as well as the influence of the Cadillac tax slated for 2018, transitional reinsurance, comparative effectiveness fees, and for small employers, the value of Small Business Healthcare Tax Credits.

Now is the time for employers to tap into the right resources to make an educated Pay or Play decision. Wise health plan executives will take the lead by supporting their employer partners in this process. 

Anita Nair-Hartman, Vice President, Market Planning and Strategy
Bryan Briegel, Director, Operations

 



Modeling ABHP Designs is Critical for Employers

By Truven Staff
Account-based health plans, or ABHPs, have taken on increasing importance with employers trying to manage cost trends and position their plans to have minimal exposure to the “Cadillac” tax beginning in 2018.

Roughly 75 percent of large employers currently offer an ABHP option, and one third of employers are planning to go to a total replacement approach next year, according to a recent survey by the National Business Group on Health. ABHPs are also a prevalent design on both public and private health insurance exchanges. So understanding their cost impact — for both the plan sponsor and the employee — is of great interest to organizations evaluating their exchange options.  

In recent years, ABHPs have evolved to have more complex provisions. One area of particular interest is the design of pharmacy benefits, which has often been an afterthought. Pharmacy benefit design is an important component in encouraging efficient medication use and better compliance with therapies. Now, with advanced modeling, it becomes easier to see the specific outcomes of even highly complicated changes in pharmacy benefit design.

For example, some sponsors choose to maintain a carve-out pharmacy design, not subject to the plan medical deductibles and out-of-pocket cost-sharing. With this approach, the sponsor can employ a first-dollar, multi-tier cost-share approach including tiers for specialty drugs. Other sponsors choose to impose this type of tiered cost-sharing arrangements in a plan only after participants satisfy a combined medical and pharmacy deductible.

To understand the cost impact of this range of complex design approaches, modeling alternatives with actual employee population claims data, using an actuarially effective evaluation approach, becomes key.

Beyond pharmacy and medical benefit design, modeling can take a look at the implications of different health reimbursement and saving account funding levels and the impact on account balance accumulation. And viewing different scenarios of enrollee treatment compliance and their effects on population health can have tremendous value, too.

Going forward, employers have a lot to gain by honing their approach for ABHP design. In combination with a thoughtful measurement approach, using the data that’s already available on enrollees’ health risks, costs, and usage patterns, a sponsor can ensure the plans continue to contribute to lowered cost trends and improved employee health.

And frankly, without the insights that modeling can bring to those pre-design discussions, employers will likely leave money on the table and lose a chance to make a noticeable difference in population health over time.

The End of Employer-Provided Health Insurance? – Not So Fast

By Truven Staff
Mike Taylor imageA recent article in The New York Times, ”Envisioning the End of Employer-Provided Health Plans,” predicts that  90% of employers will transition to exchanges to provide their employees with health insurance by 2020. The author suggests that defined contribution health plans will follow the course of 401(k) plans where employers transitioned from pensions to a defined contribution type of retirement benefit. It may not be that simple. An employer's decision to move to an exchange may hinge on two competing factors: worker productivity, and the financial implications (including the so-called Cadillac tax) of moving to an exchange.

Many large employers recognize a connection between employee health and productivity and have been actively intervening with employees to improve worker health, seeing these efforts as a competitive business advantage. To date, employers have not seen any evidence – or even any consideration – from state and federally run exchanges that these health plans will address the issue. There is mounting evidence that employer-sponsored health promotion efforts have the potential to improve worker health and lessen the cost of disability. As the Medical Director for Health Promotion at Caterpillar, I was able to measure health improvements among employees for targeted risks and diseases. Employers understand the total cost of poor health goes beyond medical bills: just one third of the cost is direct medical expense while two thirds are the costs from absence, disability, and sub-optimal performance of workers with health issues.

Certain sectors of employers will look closely at exchanges, particularly those whose employees are not well compensated or have high turnover rates. The exchanges may be an appropriate alternative for those employers. However, in the sectors of our economy where knowledge workers are a valued and highly sought after asset, the exchanges are currently viewed as an unproven benefit. In companies who see their employees as a valued asset, health benefits are an important part of the overall compensation strategy, and employers are not willing (yet) to trust exchanges to serve their workers.

What about the competing factor? The financial implications are complex. It’s naïve to think a company currently spending $10,000 per worker on healthcare would simply stop that benefit, pay a $2000 fine and force their employees to pay the balance. At Truven Health Analytics, we have modeled the costs of moving to an exchange while keeping the employee “whole.” Given the penalties, the tax implications and the costs of the exchanges, for most employers it’s more expensive to move to the exchanges than continuing to offer health insurance. Moving to exchanges is only financially viable if employers force their workers to shoulder all or most of the burden without additional compensation. Most employers are not ready to take that step, especially given the uncertainty of the exchanges.

The game-changer may be the excise tax (“Cadillac” tax) currently slated to take effect in 2018. This provision requires employers to pay a 40% penalty for health insurance benefits exceeding a fixed dollar amount. It’s very unlikely that employers will pay this tax. Employer-sponsored health benefits will likely hinge on this excise tax: if it’s not repealed or significantly modified, the excise tax may force employers out of the business of providing health insurance for their workers. Ultimately, if high enough, cost will trump concern over worker productivity, and will cause employers to consider other strategies to maintain and improve worker health and productivity. Stay tuned – employer-provided health insurance will be hotly debated over the next several years.

Michael L. Taylor, MD, FACP
Chief Medical Officer

The Time is Now for Employers to Minimize Their “Cadillac” Tax Exposure

By Truven Staff
Chris Justice imageAlthough the employer mandate included in the Patient Protection and Affordable Care Act (PPACA) has been delayed until January 1, 2015, there isn’t time for employers to take a breather. In fact, employers need to use this time to put their PPACA impact analysis and planning into high gear.

In a newly released insights brief from Truven Health Analytics, The Time is Now: Immediate Actions for Employers Around Health Reform, we provide some key insights into what employers should be doing this year. One of the most important is to minimize exposure to the 40 percent “Cadillac” excise tax.

Most of us know that employers with self-funded arrangements will pay the tax on their high-cost plans; carriers will pay the tax on insured plans, presumably passing on costs in the form of higher premiums. Employers need to understand what cost-trend rates they need to maintain to minimize or avoid exposure to the tax. In addition, they will need to consider the impact of high-deductible and consumer-driven health plan designs on population health and health risk.

This means that organizations should be focused today on creating comprehensive healthcare cost projections using various trend and plan design assumptions to inform decisions on cost control measures and cost sharing approaches. Modeling “what-if” plans can help employers assess the viability of different benefit plan and premium contribution scenarios, including high-deductible and consumer-driven health plan designs.

Other items on the smart employer’s to-do list right now should be: determining if their plans meet the minimum value and affordability requirements, assessing the impact of the Patient-Centered Outcomes Research Trust Fund and Transitional Reinsurance fees, and determining the financial impact of exchange migration.

Download our recent insights brief, The Time is Now: Immediate Actions for Employers Around Health Reform.

Chris Justice
Senior Director, Practice Leadership

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