Today’s Managing Health Care Costs Number is 46%
Debate continues on whether to junk the Affordable Care Act’s excise tax (“Cadillac Tax). The tax would raise $87 billion over 10 years – not a whole lot of money compared to the overall cost of the ACA subsidies ($1.35 trillion over that time period). About a quarter of employers would have at least one plan that would be subjected to this tax in its first year (2018), and this could go up to 30% in 2023 according to a recent Kaiser Family Foundation simulation study.
But this doesn’t capture the full scale of the problem. Among employers with over 200 employees, 46% will hit the excise tax threshold in 2018, and this will go up to 56% by 2023. The KFF simulation shows that employers who would not be liable to pay this tax for their overall benefit are highly likely to have to pay it for at least a portion of their population – those who have an open network plan with lower member cost sharing. The excise tax is levied on dollars paid by employer and those paid by the employee through payroll deductions; dollars paid by members as out of pocket costs are not included in the calculation.
Employers will continue to make difficult choices to avoid the excise tax. The likely changes between now and 2018 include:
1) Eliminate flexible savings account (FSA) contributions, which are fully funded by employees but would count toward the tax liabities.
2) Decrease health plan choice – eliminating high actuarial value health plans which would be more likely to trigger the tax
3) Move to high deductible health plans – and decrease what is covered by the health plan
4) Limit employer “seeding” of account based health plans (HRAs, HSAs)
5) Decrease breadth of network to exclude higher cost providers.
This plan will work much as the ACA’s drafters expected. It encourages a decrease in the generosity of health plans, which helps address the problem of patients overusing health care since they have generous health insurance. This is good, to the extent we’re convinced that patients drive the increasing cost of health care. But this means that patients are “on their own” more and more when it comes to paying for care. Employees face a gauntlet of bureaucratic structures on the provider side that seek to extract revenue from them.
We also tend to look at average costs for patients – and this misses the fact that there is a long tail of patients with exceptionally high costs. For these patients, the average out of pocket cost is irrelevant –annual out of pocket maximum really matters. The out of pocket maximums are $6600 (Individual) and $13,200 (family) for health exchange plans and the maximums don’t apply to out of network care. Out of pocket maximums can be substantially higher in non-exchange health plans; I’ve seen plan designs with out of pocket maximums that exceed $25,000 annually for a family.
I’m increasingly worried that health care costs will be increasingly out of reach for those who have extensive medical problems. This KFF simulation helps support efforts to eliminate the excise tax. Maintaining the excise tax as it is currently being interpreted will diminish access to health plans that are most meaningful for those with serious illnesses.
Recent posts on excise tax
Recent posts on excise tax
