By Rebecca Adams, CQ HealthBeat Associate Editor
October 4, 2013 -- Even though it won't take effect for several years the so-called Cadillac tax in the health law already appears to be causing employers to try to rein in the costs of health coverage.
As employees at many private companies prepare for the open enrollment season, some will find out soon about decisions their employers have made about benefits in order to escape a tax on expensive health care coverage that hits in 2018.
The tax imposes a 40 percent excise tax beginning in 2018 on the cost of coverage for health plans that goes above limits of $10,200 for individual coverage and $27,500 for self and spouse or family coverage that year.
Nearly a third of all big employers say they are taking steps in 2014 to avoid the tax in 2018, according to a survey released earlier this week by the Mercer consulting firm.
Mercer estimates that about 40 percent of companies would have to pay the tax on at least one plan if they did not change the current benefit design. Mercer's figures are the partial findings of a survey of 2,800 large employers across the nation, with about 2,000 responses so far. The full survey will be released later.
One of the changes to lower employer costs and avoid the tax includes nudging workers to join an existing "consumer-directed" plan. Typically these plans include a feature such as a health savings account or a health reimbursement account funded in part by the employer to help pay out of pocket expenses. The plan is coupled with high-deductible coverage for catastrophic costs. Employers next year may be offering new consumer-directed plan options, said Tracy Watts, senior partner and Mercer's point person on health reform.
That fits with findings from August from an internal survey of 108 employers by the National Business Group on Health (NBGH), which represents Fortune 500 companies. The employers rated the three most effective ways to lower costs as wellness initiatives to improve employee health and lower medical expenses; consumer-directed health plans; and increasing employee cost-sharing such as deductibles.
In 2013, 54 percent of the large employers in the NBGH survey said they offer consumer-directed plans as an option and 19 percent as the only way for workers to get coverage. Several that offer the plans as one alternative now plan to provide it as the only option next year. The survey found that 22 percent will make it the only choice.
Employers are also investing in more wellness programs, changing drug benefits especially for specialty drugs like injectable treatments, offering more service through on-site clinics, doing more contracting with high-quality and low-cost centers and offering more disease management services.
Another approach being considered is charging higher-paid employees more for health coverage. One-third of companies in the NBGH sample said they would do that in 2015 and another 8 percent said they are considering it in 2015.
And private exchanges, an increasingly popular idea, could be a way for employers to make changes in benefits while simultaneously distancing themselves from reductions in coverage.
"You can look at private exchanges as a safety valve for the Cadillac tax," said Steve Wojcik, vice president of public policy for the National Business Group on Health. As 2018 draws closer, he said, employers who have been unable to scale back health care spending could turn to private exchanges.
"It's easy to imagine some employers won't be able to get costs under the threshold unless they move to private exchanges because sometimes it's easier for an outside entity to impose the changes by saying these are the plan offerings," he said.
In other words, instead of scaling back benefits for workers in their existing plans, the companies could join a private exchange in which all of the choices would not exceed the level of spending that would trigger the Cadillac tax.
Gary Claxton, the director of the Health Care Marketplace Project at the nonpartisan Kaiser Family Foundation, said employers do not want to wait until 2016 or 2017 to make changes abruptly. But at the same time, it's hard for employers to know exactly what the details of the excise tax will be since the Obama administration has not yet released a proposed rule on it.
"If you want to moderate costs, you can use it as an excuse," said Claxton. "Anytime someone can blame it on something else, they will."