The impending Cadillac tax in 2018 seemed like a tax on health plans with ultra-rich benefits when it was passed, but the reality is it could hit about one-third of employers if left unchanged.
Even the California Public Employees Retirement System, which has been a trend-setter in lowering costs through reference-based pricing, accountable care organizations and value-based prescription drug strategies, would be hit with the excise tax based on its current plans.
In 2018, the Affordable Care Act will impose a 40 percent excise tax on the aggregate cost of health benefits that exceed $10,200 for individual coverage and $27,500 for family coverage, indexed to inflation.
After analyzing its plan, CalPERS found that if the tax were in place today, its Blue Shield Access+ plan offered through Blue Shield of California in the San Francisco area and the Anthem Traditional HMO plan in Sacramento would both trigger the tax because they cost more than the limit. The purchasing coalition estimated it would pay $3.9 million in excise taxes.
Both of these plans are pricier because they are full networks. Both Blue Shield and Anthem have narrow network forms of these plans, and the only difference in the plans is the network size the benefits are the same. CalPERS has always offered both options to employees.
CalPERS is now reviewing the physician networks of both Anthem and Blue Shield to find how many lives would be displaced and forced to find a new physician if CalPERS removes the full network option.
CalPERS, like most employers, says it cannot afford to pay the excise tax. And if CalPERS, a leading purchasing coalition that has been on the front lines of implement cost-saving programs, is facing the tax, many other employers are likely to see it. A survey by Mercer found about 31 percent of all employers and 33 percent of large employers would be hit with the tax if they don't change their plans. That number rises to 58 percent for large employers in 2022.
The impact will mean more narrow network plans (even for large employers who generally don't like them) and even more rapid growth of consumer-directed health plans and defined contribution plans. The uproar to repeal or change the Cadillac tax thresholds or the tax altogether is likely to rise to a crescendo in the coming year.