Employers begin ‘crash-testing’ plans to avoid Cadillac tax, other PPACA cost increases

Of all the things employers have to worry about since the passage of the Patient Protection and Affordable Care Act—and there are quite a few — it’s understandably the Cadillac tax on high-cost health benefit plans that has them the most concerned, according to new survey results from Mercer.

Ambien sales may increase between now and 2018, when the 40% excise tax goes into effect, as it might be keeping more than half of survey respondents up at night. Mercer finds the Cadillac tax is “a concern” or “very significant concern” for 58% of those polled. 

Also worrying employers are PPACA’s dependent eligibility extension and ban on the use of lifetime benefit dollar limits. Each of these is a significant concern for about one-fifth of employers.

The requirement for employers to auto-enroll new hires into a health plan is a significant concern for 16% of respondents, as most (88%) currently do not do so. 

Employers already are making cost-containment plans to avoid the Cadillac tax and other cost increases borne by PPACA, Mercer finds. About 43% say they will strongly consider using their lowest-cost plan as the default auto-enrollment plan and about one-fifth are strongly considering imposing a 90-day waiting period (the maximum allowed) before enrolling new hires.

Employers also plan to wait as long as possible to implement the dependent eligibility extension, unlike many health plans.

Only about one-fourth of survey respondents that don’t already cover dependents up to age 26 say they are likely to begin before their next renewal, which for most plans is January 2011. Large, self-insured employers are even less likely to act before they have to — among respondents with 5,000 or more employees, just 16% say they are likely to implement the rule early.

In addition, about half of employers surveyed by Mercer would seriously consider requiring proof that dependents do not have coverage available to them through their own employers.

One-fifth would seriously consider changing contribution rate tiers: For example, from just two rates for employee-only and family coverage, to four or more rates based on the number of dependents covered, shifting the additional cost to employees covering the most family members. Others (16%) say they are likely simply to require higher contributions for all dependent coverage.

However, the biggie is the Cadillac tax, which 43% of the employers surveyed by Towers Watson believe they will be subject to. However, based on average annual cost projections, Towers Watson estimates that the tax cap will affect more than 60% of employers by its first year of implementation in 2018, with many more to follow soon after.

“To avoid significant tax penalties in 2018 and beyond, all employers will need to make structural program changes in the near term to moderate cost increases,” said Maselli. “While the excise tax is potentially the most expensive provision, there are others that will drive up employer costs.”

To cope with the tax and other increases, TW finds 88% of employers will pass increases to employees, while 74% will reduce health benefits and programs.

Mercer respondents said that compliance with the first round of PPACA mandates will add at least another 3% to their projected 2011 plan costs, with about one in 10 expecting an additional 5% or more. Forty-one percent predict a relatively modest increase of 2% or less, and 3% said their plans would see no cost increase.

“Average health benefit cost per employee has been rising consistently at about 6% for the past five years,” says Tracy Watts, a consultant in Mercer’s Washington, D.C., office. “That seems to be employers’ threshold of pain. If compliance with health insurance reform pushes the cost increase up toward double digits, employers will be exploring ways to bring it back within their comfort zone.”

What’s your company’s “threshold of pain”? What are your preliminary plans to sidestep the Cadillac tax and contain other PPACA-related costs? Share your thoughts in the comments.