While companies will be coping with many changes in employee health insurance brought on by the U.S. healthcare reform enacted in 2010, their biggest concern is the excise tax looming in 2018. Starting that year, companies will have to pay a 40% tax on the value of health coverage that costs more than $10,200 for individuals and $27,500 for family plans.
Given the current cost of health insurance and the pace at which medical costs are increasing, “many of the employers we work with will hit this threshold,” says Jeanne Wyand, a senior consultant at Towers Watson.
The healthcare law, PPACA, also specifies that companies’ health plans cover 60% of health expenses, and Wyand sees that requirement combining with the excise tax to create a squeeze for employers. “At some point in time, these two lines are going to converge,” she says.
For the time being, Wyand predicts companies will maintain their cost-cutting efforts, but aren’t likely to make drastic changes to their plans. “Most employers are constantly looking at their benefit programs to keep their costs down,” she says. “So part of this is: continue on the same track, and hopefully get to the point in 2018 where you’re not hitting the tax. What clients are looking at is, ‘Can I make some reasonable benefit changes that I really would make in any case given the directive of keeping my healthcare costs as low as I can?’”
In making changes, companies need to keep in mind the provisions of healthcare reform, she adds, noting for example that the law says the deductible for a single person shouldn’t be higher than $2,000.
Dental and vision coverage are benefits that employers could well eliminate in coming years as they seek to avoid the excise tax, Wyand says, since neither type of insurance is mandated under the current healthcare regulations, and at many companies, dental and vision insurance are voluntary benefits that are offered separately from health coverage.
Coming up sooner is the launch of state insurance exchanges in 2014. Once the exchanges are up and running, companies could decide to pay the penalty for not providing coverage and let their employees instead arrange coverage through the exchanges. Wyand notes, though, that there’s uncertainty about how well the exchanges will function right out of the starting gate. “Companies might hold off any decisions until 2015, to let exchanges get up and running,” she says.