Companies continue to work tocontain rising healthcare costs, with the expense of prescriptiondrugs a key pressure point. But the biggest uncertainty foremployers going into the new year is the excise tax on high-costhealth benefits, also known as the Cadillac tax, which is due to beimplemented in 2020 unless Congress intervenes.

• Update: The ECAA appropriations bill signed byPresident Trump on January 22 delays the Cadillac tax start datefrom 2020 to 2022. Read more here.

The Affordable Care Act mandated that, starting in 2018,companies pay a 40 percent excise tax on health coverage providedto employees if the costs of that coverage exceed a certainthreshold. In 2015, Congress postponed the tax's implementationdate to 2020.

A 2015 survey by Mercer showed that 34 percent of employerswould be subject to the tax in 2020 if they didn't make changes totheir plans. Businesses argue that the tax will increase theircosts and cause them to cut back on the coverage they provide toworkers.

Steve Wojcik, vice president of public policy at the NationalBusiness Group on Health, which represents large companies'interests on healthcare issues, noted that employer-provided healthcoverage is “the part of healthcare coverage that's working andfairly stable.

“Generally it's doing a better job than the exchanges ofproviding affordable coverage that people like and value,” hesaid.

And Wojcik noted that from the perspective of large companies,2020 is approaching very rapidly. Currently, employers are planningtheir benefit programs for 2019, he said. “In a few months, towardthe end of the summer, they'll be looking to start their processfor 2020. So there's not a lot of time.”

Kathryn Bakich, the national health compliance practice leaderat consultancy Segal, pointed out that employers haven't yet beengiven information on how the tax will be implemented. The IRS hasissued two notices but has not yet come out with regulations.

“It's on the books effective Jan. 1, 2020, and we have noguidance,” Bakich said. “It's a very bad situation.”

There have been attempts in Congress to eliminate the Cadillactax. Most recently, there's a measure in the House, H.R. 173, theMiddle Class Health Benefits Tax Repeal Act, that was introduced byRep. Mike Kelly, R-Pa., and has 227 co-sponsors.

James Gelfand, senior vice president of health policy at theErisa Industry Committee, an association that represents largecompanies on benefit issues, noted that the number of co-sponsorsmeans the bill has enough votes to be approved by the House.

But is it likely that Congress will eliminate the revenueprojected to be produced by the Cadillac tax when it just addedsubstantially to the U.S. budget deficit with the tax cuts signedinto law late last year?

“Clearly the excise tax is unpopular sort of across the board,”said Jim Winkler, global chief innovation officer for the healthand benefits group at Aon. “Employers don't like it; unions don'tlike it; consumer groups, once they figure out they will have topay more, they won't like it. There's bipartisan support. Theproblem is the federal deficit.”

Gelfand agreed that the cost of a full repeal of the tax couldpose a problem. “What we're focused on is showing how much supportthere is for repealing the Cadillac tax and using that to tip it toa further delay,” he said.

While a full repeal is estimated to shave $100 billion or so offthe federal government's revenues, Gelfand said, delaying the taxfor another year would cost a little over $3 billion, and atwo-year delay would be about $10 billion.

The business community argues, though, that the revenue that'sexpected to be produced by the tax is illusory. Companies have longsaid that if the tax takes effect, they will make whatever changesare necessary to keep their health benefit costs below thethreshold. The Congressional Budget Office acknowledges this in itsestimates, which assume that employers that cut health benefitswill compensate employees by raising wages, thus resulting in morerevenue from payroll taxes.

But Wojcik said it's unlikely that employers will take moneysaved by cutting back on healthcare costs and use it to boostsalaries. With healthcare costs mounting steadily, companies aremore likely to decide to use those savings to meet the higher costsexpected in coming years, he said.

“Virtually every employer we work with has said, 'I don't intendto pay that tax. I intend to make changes to my program to stayunder the tax,'” Winkler said. But he noted the disparity betweenthe tax cut companies just got and the prospect that the Cadillactax will boost employees' healthcare costs. “I think it will bechallenging to reduce benefits or increase payroll contributions ata time when the corporate tax rate is going down,” Winklersaid.

|

Mergers

Meanwhile, the December news that CVS, which is a pharmacybenefits manager (PBM) as well as a drugstore chain, will buyinsurer Aetna for $67.5 billion has drawn attention toconsolidation in the healthcare industry.

Winkler noted that the two companies have said very little abouttheir plans for the merger, but cited two ways in which the dealcould help employers contain healthcare costs. In its stores, CVSoperates MinuteClinics, which can provide flu shots and urgentcare. With the merger, “Aetna members would have access to thiscommunity system at a time when we have a growing shortage ofprimary care in the U.S.,” he said.

Combining the two companies might also give CVS's PBM a betterway to control the costs of very expensive specialty drugs, whichhave been driving the increase in drug costs. Such specialty drugsoften lack competitors, making it harder for pharmacy benefitsmanagers to negotiate for lower prices, Winkler said. “To theextent that, through Aetna, they can promote which drugs havepreferred status and get doctors writing scripts for those, there'spotential to lower costs.”

NBGH's Wojcik also cited the deal's potential to promote lessexpensive types of care like CVS's clinics, which he said“ultimately could lead to better healthcare at lower prices.”

Wojcik said employers' concerns about deal-making have more todo with mergers of hospital systems and acquisitions of physicians'practices, because of the possibility that such consolidation willincrease price pressures.

|

Individual Mandate

The tax overhaul that President Trump signed into law late lastyear included a repeal of the Affordable Care Act's individualmandate. But consultants downplayed the possible impact of thatchange.

Gelfand said his organization has been discussing with itsmember companies whether the elimination of the individual mandatewill cause younger, healthy workers to drop company healthcoverage.

Some companies note that when the mandate was implementedinitially, they saw a significant number of people sign up forcoverage who hadn't previously used the insurance, raising thepossibility that those employees could now drop coverage, he said.“Others said, 'No, it didn't change anything when it wasimplemented and it won't change anything when it goes away.'”

Bakich said she doubts the elimination of the individual mandatewill cause many workers to drop their company coverage. “The onlything I'm really concerned about with the individual mandate isthat to the extent there are more uninsured people and there aremore uncompensated care costs, employer costs could rise” ashealthcare providers pass costs through, she said.