In late December 2015, as part of a bill to fund the federal government for 2016, Congress delayed the “Cadillac tax” – the tax on high-cost employer-sponsored coverage – for two years. As a result of the delay, which costs approximately $19.7 billion, the tax will apply in 2020, rather than the original Affordable Care Act (ACA) date of 2018 (see Top regulatory trends for 2016 in Life Sciences and Health Care for more information).
Since the news broke, some organizations have taken the two-year delay as an indication that the tax will never go into effect, that no other equally disruptive policy changes may be enacted to replace it, and that they can pull back from work they had planned to complete in advance of the tax taking effect.
My view is that this may be an unwise direction for many organizations.
Instead, it may be advantageous to spend this extra time more carefully assessing the various scenarios Washington policymakers may consider in the future, as well as the changes occurring in the commercial market as the shift away from more generous employer-sponsored health benefits and movement toward consumer-directed health care continue.
First, a two-year delay does not necessarily mean the Cadillac tax is going away easily. In fact, the delay could compound the impact of the tax on the health care sector when it takes effect in 2020. More organizations’ health benefits packages are projected to exceed the tax’s thresholds ($10,200 for self-only coverage, $27,500 for all other coverage) in 2020 than would have in 2018 because the tax is indexed to CPI and not medical inflation, which is projected to grow at a faster rate. And as time passes, the cost to repeal the tax grows and creates a larger hole in the federal deficit as more plans fall subject to the tax. Further, the Department of the Treasury and Internal Revenue Service may issue regulations on the Cadillac tax in 2016 as the Administration still strongly supports the policy and its inclusion as a central cost-reduction and revenue-raising measure in the ACA. These regulations will outline details that are essential for organizations to comply with the tax requirements and adjust their strategies for the tax’s impact on the health care marketplace.
Organizations would be wise to watch for the emergence of the pending regulations, review them carefully, and have a plan in place on their shelf if, in fact, the tax goes into effect in 2020. The Cadillac tax is unlike other fees and taxes in the ACA that require health plans, providers, and life sciences companies to more simply “foot the bill.” The potential impact of the tax on the overall commercial market and the more than 150 million lives covered in employer-sponsored plans should spur hospitals and other health care providers to keep a close eye on it. Employers who wish to avoid paying the Cadillac tax may have limited options, such as reducing their employee benefit packages, shifting more costs to employees, and eventually even considering exit strategies when the tax hits them in full force. This should give us all pause as we consider the crucial role employers play as a powerful organizer, negotiator, innovator, and financial contributor to the private sector market in the US.
Equally important, even if the tax heads toward further delay or even full repeal, it is not likely to go down without a fight under a new presidential administration and Congress. Despite the current furor over the pros and cons of the Cadillac tax itself, the pressure remains to reduce health care spending overall and increase the affordability of coverage. No matter who controls the White House in 2017 prior to the tax taking effect, we are likely to see new policy proposals emerge that would put other measures in place to accomplish the same goals as the Cadillac tax. This may include new ways to increase the affordability of health benefits and a re-examination of the tax treatment of health care benefits, such as capping the individual exclusion for employer-sponsored benefits, creating a clearer path toward defined contribution models for employers to allow their employees to shop for the coverage of their choosing, and examining potential new tax savings vehicles or credits for individuals.
The bottom line? The takeaway I see is that all roads are leading toward a greater shift in consumers directly paying for more health care services and exercising greater control over how and where their health care dollars are spent. As my colleague, Greg Scott, US Health Plan Sector Leader, Deloitte LLP, recently wrote in the December 22, 2015 Health Care Current, “the broad industry trends towards consumerism – characterized by higher consumer cost sharing, enhanced consumer engagement and decision support, and more shifting of purchasing responsibility from employers and other health insurance sponsors to individuals – is increasing the price sensitivity of consumers and influencing their behaviors.”
I love to cross things off of my to-do list. And as William James once famously said, “nothing is so fatiguing as the eternal hanging on of an uncompleted task.” The debate and implications of the Cadillac tax have not gone away and should still remain high on the to-do list. Smart organizations are prepping for the regulations, analyzing the upcoming various policy scenarios that the elections will bring, and most importantly, preparing for the ongoing trends occurring in the markets that require new ways to engage more fully with health care customers and patients.