The truth for most employers is that the Affordable Care Act’s feared excise tax is coming in 2018. In the public sector, major employers such as the City of Boston are utilizing vendor and plan management strategies, with the help of union negotiations, to control their health plan costs.

Last spring, The Segal Company disclosed to the city’s more than 40 unions that two health plans already exceed the excise tax threshold for active employees. When applying a 6.5% trend increase to the other plans, all plans were in “danger of hitting the tax in 2018,” explained Kathleen Green, Boston’s director of health benefits and insurance, speaking at the International Foundation of Employee Benefit Plans’ 60th Annual Employee Benefits Conference.

Across the country, this danger is a reality for most employers. Aon Hewitt said in a recent study that 40% of U.S. employers expect to hit the excise tax when it becomes active. And 14% of companies predict that it will have an immediate impact on their current health plan lineup, Aon Hewitt noted in its new pulse survey.  

See also: 5 ACA issues employers should be following

Through six non-Medicare health plans, the City of Boston covers over 15,000 active employees, 3,000 of which are in public safety, as well as 4,000 non-Medicare retirees. Green disclosed that Boston was currently “finalizing negotiations” on a new health plan structure with its unions. With a new request for proposal for its non-Medicare plans going out in October, and a planned RFP in 2017 to carve out its prescription drug coverage, she said the city is doing its part to deal with the uncertainty around the ACA.

“There’s still a lot unknowns for the excise tax, and as further guidance is finalized we’ll be able to prepare better for that,” Green confessed to conference attendees. “But, we feel that at this time, the City of Boston is doing its due diligence to try to protect ourselves from hitting that.”

The agreement is set to run from 2015 through 2020 and will likely lead to a consolidated non-Medicare structure that includes three health plans. Green added that Boston plans to bump up co-pays as well as incorporate a “slight increase” to the employer share of the premium for its health plans.

But according to Kathryn L. Bakich, Segal’s national health compliance practice leader, this cost sharing does little to limit the burden for employers and employees.

“If you’re trying to change the employer/employee contribution mix, that is not going to affect your excise tax liability,” Bakich said at the conference. That’s “because you’re looking at the value of the plan – not who pays the premiums.”

See also: Lafarge U.S. launches voluntary benefits strategy to delay ACA excise tax

Still up for debate are the possible reasons why the excise tax was embedded into the ACA in the first place. Bakich noted that it could possibly raise income, address the employer-sponsored tax exclusion or even encourage people to use lower-cost insurance products. It may also promote health care consumerism and produce behavioral changes in the population, she said.

Meanwhile, one thing is certain. Effective in 2018, the excise tax is a 40% tax on employers that provide high-cost health benefits to their employees. Thresholds are $10,200 for individual coverage and $27,500 for family coverage. In terms of who forks out dollars for the tax, Bakich said that insurers will likely pay for insured plans, which will undoubtedly be passed onto employers and employees. Also, for self-funded plans, plan administrators are liable for the tax.

But from the union perspective, “any burden will be borne by the employees and members of the collective bargaining agreement,” said John E. Slatery, director of the benefits department at the International Brotherhood of Teamsters in Washington, D.C. For the strongest union in North America, the excise tax issue is front and center, where IBT negotiates benefits and wages for its more than 1.4 million members.

Slatery recommended that all employers and employee groups should be focusing on similar strategies such as the City of Boston. He noted that there should be ways to reduce costs, noting that vendor management is a possible avenue to attain affordable pricing and fair contracts.

“The Cadillac tax is making us looking at all these different types of things to try to manage it,” Slatery said. “And so, in the end it is going to help us try to bend the cost curve a little bit more; unfortunately, in the short term, cost [will shift] onto employees.”

Despite noting that politics can “affect employee benefit plans quite dramatically,” Slatery said any possible changes during the mid-term elections will not impact the law because it’s unlikely the ACA will get repealed. Meanwhile, he’s optimistic over the ACA and its future impact on the employee health care industry.  

“I think in the long term the law’s going to work,” Slatery explained to IFEBP conference attendees. “People are actually going to like it. Fewer people will be uninsured; those people are going to vote, and those people are going to vote with their pocket books.” Even so, he added, “insurance companies will like the law, they will make money, and I think in the end it’s going to be a long-lasting law that will hopefully be tweaked for the better going forward.”

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