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3 Ways to Steer Clear of the Cadillac Tax

June 15, 2015

Three ways employers can potentially avoid triggering the Cadillac tax.

The excise tax on high-value employer-provided health care plans — widely known as the “Cadillac tax” — isn’t scheduled to take effect until 2018, but many employers are already worrying about how it could affect both their bottom lines and their recruiting and retention efforts. The good news is that employers can take steps now to reduce the odds of being hit with this pricey tax.

The 40% tax will be assessed on the value of all participant-elected health care benefits that exceed certain dollar thresholds. The thresholds were initially set at $10,200 for individual coverage and $27,500 for family coverage, but they’ll be adjusted based on inflation between 2010 —when the Affordable Care Act (ACA) was enacted — and 2018, with annual adjustments going forward.

Here are three ways employers can potentially avoid triggering the Cadillac tax:

  1. Redesign your health plan. Perhaps the most obvious strategy is to redesign the health plan you offer. You could increase deductibles, copayments and/or out-of-pocket limits. Or you could move employees to lower value plans — for example, from a platinum plan to a gold, silver or even bronze level. And you could offer a more limited network, which would give you more negotiating power with those providers. These changes, of course, could undermine recruiting and retention.
  2. Implement reference-based pricing. Self-insured employers might shift to referenced-based pricing, paying out claims based on the Medicare reimbursement rates. Some offer no more than that rate for services, while others pay 10% or 20% above. This approach contains costs and makes health care expenses more predictable.
  3. Offer wellness and disease management benefits. Simply put, the best way to keep a lid on health care spending is to keep your workforce healthy. Many employers are already pursuing wellness programs in light of the ACA’s financial incentives. It could pay to go even further by retaining a disease management company to work with employees with chronic conditions such as diabetes and high blood pressure.

Generous health care benefits are often a cornerstone to the recruitment and retention of high-quality employees. You need to start planning now to determine how you can minimize your exposure to the Cadillac tax while still maintaining the caliber of workforce you desire. Please contact us for more information on the tax and how you can avoid or minimize it while still achieving your recruiting and retention goals.

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