Employers will lean onto private exchanges. Will the employee benefit–well that is debatable.
This tax, if implemented, will drive changes in employer and employee behavior. Employers know that on or before 2031, the typical family healthcare plan will reach the excise tax threshold. The Cadillac tax is indexed to inflation (Consumer Price Index) and not medical inflation, and rather quickly will result in the middle class health plan subscriber absorbing the tax with an ‘average plan’ hitting the threshold.
Employers have two options either reduce their tax by cutting benefits or reduce employees’ benefits, in effect passing the tax onto employees. Employer acceptance of independent retirement accounts (IRAs), health maintenance organizations (HMOs), and consumer-directed health plans (CDHPs) will grow as they push premiums under the threshold, reallocating employee compensation into taxable wages and salaries and away from nontaxable insurance benefits. The affect is American employees and their families will pay a greater share of their compensation to taxes.
The conversation then refocuses towards private insurance exchanges. Supported by the SterlingRisk Employee Benefits Group, there are four primary advantages for employers considering private exchanges: 1. Wide insurance products to choose from 2. Employee buys what they value and employers have fixed budget allocations 3. Increases employee satisfaction through greater personalized benefits and 4. Strealined benefits administration makes for easier change reporting.
Flipping to the employee perspective, there are challenges. The greater choice among health plans is likely to cause confusion for employees. Increased enrollment in consumer-directed health plans means we expect the employee to be better educated. Most concerning is the high probability for increased financial burden through defined employee contributions. We know how the shift in private-sector employer-provided retirement plans from defined benefit plans to defined contribution plans, turned out for employees.
Greater adoption of wellness incentives, tobacco-use surcharges and worksite clinics will be required increasing employee cost sharing. Additionally, employers may carve out dental and vision benefits from existing health care plans because they don’t trigger the excise tax when written under a separate benefit plan.