Employers Alter Health Plans to Drop Costs, Avoid Tax

Benefit changes for 2015 and beyond aim to keep spending below threshold

By Stephen Miller, CEBS Nov 19, 2014

With an eye on 2018, when a 40 percent excise tax on “high value” health plans is slated to take effect, U.S. employers are planning changes for 2015 and beyond to keep their plans under the tax threshold, according to a joint survey of HR professionals by the Society for Human Resource Management (SHRM) and the nonprofit Employee Benefit Research Institute (EBRI).

The SHRM/EBRI 2014 Health Benefits Survey polled more than 3,300 HR professionals from early February to early April. The survey report was posted on Nov. 19.

Excise Tax Basics

Beginning in 2018, the Affordable Care Act's (ACA) 40 percent excise tax will be levied on the value of health insurance benefits above a certain amount—$10,200 for single coverage and $27,500 for family coverage, indexed annually for inflation. The levy is expected to affect plans that are costly because they are tailored for employees in high-risk professions or for employers with a large proportion of older employees.

Self-insured employers will have to pay the tax themselves. Insurance carriers will pay the tax on behalf of employers with fully insured plans. However, carriers almost certainly will pass along the cost of the tax to employers. (To learn more about the tax, see the SHRM Online article Tracking the Excise Tax Impact on High-value Plans.)

Still Committed to Coverage

Despite employers’ continued uncertainty surrounding health care reform and its related costs, most organizations are not considering eliminating coverage for their employees at this time. Only 1 percent of HR professionals who responded to this survey said their organization would eliminate coverage in 2015.

And while many survey respondents (30 percent) said they still don’t know what actions they would take to avoid the excise tax, very few (3.5 percent) said they would eliminate health care coverage before 2018 as a result.

“We know from other SHRM research that health care benefits are a valuable employee recruiting tool," said Andrew Mariotti, senior researcher at SHRM. “Given the competitive nature of finding skilled workers, human resource professionals view health care as an important element of a strategic benefits package.”

Plan Changes Anticipated

A relatively large number of employers continue to introduce wellness rewards and penalties, possibly the result of the combination of the ACA-allowed higher financial incentives and the 2018 excise tax on high-cost health plans. Employers may also be focusing on wellness programs because of the link to worker risks and behaviors, which drive chronic conditions and account for a large percentage of overall health spending.

For all organizations, adding wellness rewards or penalties to promote better health was the most common benefits change planned for 2015, cited by more than a quarter of all respondents. Ultimately, concerns about the excise tax on high-cost health plans may result in limiting coveage of spouses and dependents, and accelerated adoption of tiered networks, private health insurance exchanges, value-based insurance design, and reference pricing.

The anticipated actions most often cited by HR professionals are shown below.

Do you plan to make any of the following changes to your health care plans in 2015?

Add wellness rewards and penalties

26.3% of respondents

Require spouses to get coverage through their own employer

7.9%

Institute spousal surcharge

6.7%

Create tiered networks

3.6%

Move to private exchange

3.2%

Adopt a value-based insurance design

2.6%

Provide an employee subsidy for coverage purchased on a private exchange

2.6%

Eliminate coverage for part-time workers

1.3%

Eliminate health coverage for all employees

1.0%

Adopt reference pricing

0.6%

Source: SHRM/EBRI 2014 Health Benefits Survey

Click here to view a graph of plan changes by company size.

Large Employers Face Greatest Risk

Large organizations (750 or more full-time employees) were more likely than small organizations to be anticipating changes to their health plans next year. One reason is that large organizationswere also more likely to expect to hit the excise tax in 2018, as their plans are typically more generous than those of many smaller employers.

PPOs Plans Are Most Vulnerable

Some 85 percent of respondents overall did not expect their organizations' health care benefits to trigger the excise tax in 2018. But of the organizations that did, nearly 75 percent expected their preferred provider organization (PPO) plans to do so—more than all other plans combined—as shown below.

Which plans do you expect to hit the excise tax?

Preferred-provider organization

74.3% of respondents

Health maintenance organization

18.5%

Point of service plan

17.3%

Consumer-driven health plan

7.6%

Exclusive provider organization

4.8%

Indemnity (fee for service) plan

1.2%

Other

1.6%

Source: SHRM/EBRI 2014 Health Benefits Survey



Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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