"With the current health plan crunch and the looming ACA Cadillac tax, it is easy to lose sight of the big picture..."
We know, you're receiving executive pressure to cut costs, recruiting pressure to maintain and even improve your benefits package -- and then there's the ACA Cadillac tax looming on the horizon.
Starting in 2018, the Affordable Care Act will impose a 40% excise tax on high-cost group health plans (We wonder, how did a word that fundamentally means to "cut out" come to mean "add to"?) .
Towers Watson points out two points of the excise tax that are important for every company to factor in when considering the impact of the tax:
1. Both employer and employee premium contributions are factored into the excise tax, not just what the employer pays for coverage.
2. Tax-advantaged health care accounts -- health flexible spending accounts, health reimbursement accounts and pretax contributions to a health savings account -- all need to be included in tax calculations. The tax is not determined by the value of the medical plan alone but rather the value of all affected health benefits elected by an employee or family.
According to recent Towers Watson research, two-thirds (62%) of employers surveyed say the 2018 excise tax will have a moderate to significant impact on their health care strategy.
2% - Deciding Factor
29% - Significant Influence
33% - Moderate Influence
29% - Small Influence
7% - No Influence
It is interesting to review these employers' strategies:
-Currently, 32% are implementing spousal surcharges, but that number is set to double (61%) over the next three years.
-More than half (53%) of the midsize to large employers surveyed say they plan to significantly reduce subsidies for spouses and dependents by 2018.
-Four in 10 employers say they may adopt a defined contribution arrangement by 2018.
The double-digit specialty pharmacy costs are definitely a target:
-A majority (61%) of employers are adopting coverage and utilization restrictions in their specialty pharmacy strategy.
-More than a third of employers today are adopting a high performance formulary that eliminates or reduces brand name coverage or utilization in certain categories, with another 26% considering it by 2018.
-Thirty percent of employers are also implementing coverage changes to influence site of care for specialty pharmacy and that number could increase to 67% of employers by 2018.
-Four in 10 (41%) employers are evaluating and addressing specialty pharmacy spending within the medical benefit and another 42% will do so by 2018.
"...how do you maintain the fundamental integrity of your health benefits to continue to achieve your original goals?"
All of these aggressive employer efforts to avoid the "Cadillac Tax" begin to beg the question -- aside from the ACA requirements -- ultimately why are you offering health benefits to your employees in the first place?
Yes, the law now requires employers to offer health benefits, but it seems to us that the best practice is for an organization to stand back and ask that primary question.
The answer or answers to that question for your particular company will move your approach from reactionary "slice and dice" to a more holistic, business-minded, proactive approach that allows you to take back control of your decision-making process, realigning with your company's purpose for being, your "true North."
If you were already offering health benefits to your employees before ACA, it may have been because you wanted to recruit the very best talent and/or it may have been because you wanted to retain the very best talent. Or it could have been for entirely different reasons unique to your company.
Stand back and think about those original reasons -- do they still apply? ACA aside, are they still important factors in achieving bottomline success?
If the answer is "yes," the next question is how do you maintain the fundamental integrity of your health benefits to continue to achieve those original goals? The answer to that question is going to differ for each organization:
-Can you switch to a HDHP with HSAs and still meet those original goals?
-Can you switch to a blend approach of major medical and voluntary, sharing costs more with your employees and still meet those original goals?
-Do you have enough clout as a company, or can you band together with other companies, to make transparency and accountability demands of your providers, and specialty pharmacy spending -- and still meet those original goals?
-Can employee wellness incentives make a significant difference?
How many more variations can you think of in your particular situation to streamline and reduce overall costs of your health benefits while still meeting your original goals?
And don't forget to ask yourself how you can make your employees "partners" in this effort to continue to meet your original goals.
After all, you need them and they need you. You both stand to win in finding the best solution for the long-term health of your organization.
It may take more time now to stand back and perform a top to bottom evaluation of your health benefits than just cutting here, then cutting there -- but our clients on the other side of that evaluation process are telling us they are so glad they did.
Melissa A Winn April 23, 2015 Employee Benefit News
Rylan Klaseen & Associates
Serving Southern California: