Cadillac Tax (Part 2)Posted on: October 30, 2014Categories: HR & Compliance
The spread of plan level results is quite wide and varies by plan. For the lowest quarter of plans, 25th percentile, the projected 2018 Cadillac tax is 1.2% of plan costs. For plans at the top 10 percent, 90th percentile, it jumps to 12.3%. It will be hard for health system plans to adjust benefit design to avoid that big of a tax hit.
There is a range of projected plan costs for two coverage tiers. At the plan level, of those expected to incur the tax, 95% expect it for the employee only coverage tier, while just 11% expect tax incident to the employee and family tier. For example, in the 25th percentile employee only expected cost is $12,920. For the 90th percentile those costs increase to $14,605 for employee only and $28,458 employee and family.
It has been found that healthcare inflation is needed to avoid the tax for health system employer plans through 2018 and through 2020. Truven Health Analytics found that 10% of plans, 90th percentile, will have to maintain an annual health care trend rate of less than 1.3% to avoid the tax through 2020. This could cause problems because these plans are ones that currently enjoy the highest level of costs. On the other end, the 25th percentile of cost could sustain double-digit trend rates and still avoid the tax.
Health risk is a major driving factor of plan cost. Cadillac plans had 10% greater actuarial value and 56% greater differential in population health risk than other plans. The combination of the two was 73% higher in the high-cost plans not projected to incur the tax. Using this approach, population health risk has a higher impact on total cost than the underlying actuarial value.