The taxman is coming to employer-sponsored health insurance, and his visit may trigger changes to your benefits.
The health care overhaul calls for a 40-percent tax starting in 2018 on the value of employer-sponsored coverage that costs more than $10,200 for single plans and $27,500 for family insurance. Employers are working to avoid this tax by cutting costs that have been rising for several years.
As a result, your boss may unveil some adjustments to benefits later this fall during the annual open enrollment period, a time when workers can review and change coverage for the next year. Benefits consultant Mercer found that more than half of the roughly 1,200 employers who responded to its survey expect to make some changes to coverage in 2016.
Here’s how your employer might react to this tax and, in some cases, how it may affect your coverage:
1 — ENCOURAGE HEALTHY LIVING
The push by employers to make employees healthier may get stronger in 2016 and beyond.
Mercer’s survey found that 42 percent of employers were considering adding or expanding programs to improve employee health, specifically to avoid the excise tax. These programs often start with a health risk assessment and coaching to help employees improve their well-being. That might include help for those who want to quit smoking, eat better or manage chronic conditions like diabetes.
Companies have become more aggressive with this approach in recent years by levying surcharges or added costs on employees who smoke or don’t take a health risk assessment.
Employers want workers to take better care of their health with the hope that this wards off future medical expenses. Simply put, a worker who manages his diabetes or improves cholesterol levels may prevent a heart attack.
2 — ADJUST COVERAGE
If your spouse can get coverage through his or her job, expect your employer to encourage this. More companies are adding surcharges to the cost of coverage for spouses who have other options.
Companies also have been raising deductibles, or the amount a person has to pay before most insurance coverage begins. This lowers the premium or cost of coverage. It also can encourage patients to shop for better prices on some forms of care. Companies are offering some help with these high deductibles.
A quarter of employers surveyed by Mercer say they are considering adding a consumer-directed health plan to the coverage choices they offer or working to increase enrollment in one to help avoid the tax. That’s in addition to the 41 percent that have already done this. These plans pair coverage that has a deductible topping $1,200 with an account that lets the employer or worker save for medical expenses.
Some businesses also may cut back on their use of flexible spending accounts, which can give workers who don’t have a consumer-directed health plan a chance to set aside money before taxes for out-of-pocket health care costs. The amounts that employees set aside count toward the thresholds that trigger the tax.
3 — OFFER NEW ALTERNATIVES
More employers and insurers are attempting to shave costs by providing telemedicine options that connect people virtually with a care provider through a smartphone, tablet or desktop computer for relatively minor conditions. These visits can cost half as much as a trip to the doctor’s office, which can run around $100 for people with high deductible coverage.
Some companies also are considering moving their employees to a private insurance exchange. For that coverage, employers give workers a set amount of money and then send them to an exchange that offers several different plans.
The exchanges themselves do little to lower the cost of health insurance for the employer, but research shows that employees tend to pick less expensive options when given choices, said Tracy Watts, a senior partner with Mercer, which operates a private health exchange.
More employers also are offering supplemental accident coverage that can help patients with medical expenses left by a high-deductible plan, according to the insurer Sun Life Financial. That coverage doesn’t count toward the tax threshold.
4 — WAIT OUT THE DEBATE
Some employers may choose to do nothing for now until they see what happens with the tax.
Both Republicans and Democrats in Congress are calling for its repeal. The so-called “Cadillac Tax” was aimed at excessive health insurance coverage, but it stirs worry because the threshold levels that trigger it will rise slower than the cost of care.
That means that each year, a growing percentage of plans may hit it.
If a repeal doesn’t happen, politicians may push to soften its impact by preserving the use of things like flexible spending accounts. The IRS is still finalizing tax guidelines.
“Even if it doesn’t get repealed, at least there’s a really strong voice for some major changes to how it’s calculated,” Watts said.