Workplace Insights | Bank of America Merrill Lynch

Healthcare benefits are an important component of a company's total benefits offerings, but cost containment is an ongoing challenge in a continually changing industry and regulatory environment. We are dedicated to helping Plan Sponsors stay informed on the complex issues impacting the healthcare industry.

Our Point of View

The new Administration and the Republican controlled Congress are agreed that the Affordable Care Act needs to be reformed. We continue to monitor and will provide updates as the policy develops.

Tax Cuts and Jobs Act of 2017
The current administration and the Republican leadership in the House and Senate continue to work to repeal the Affordable Care Act (ACA). In December 2017, Congress passed legislation to cut taxes and included one element of the ACA. The Tax Cuts and Jobs Act signed into law by the President in December 2017 effectively repeals the Individual Mandate under the Affordable Care Act (ACA). The individual shared responsibility provision of the ACA requires taxpayers to have qualifying health coverage (also known as minimum essential coverage), qualify for a coverage exemption, or make an individual shared responsibility payment when filing their federal income tax return. Effective after December 31, 2018, the individual responsibility payment (the penalty for failure to have health insurance coverage) is reduced to $0 by the Act, effectively removing the penalty for non-coverage.

Affordable Care Act
Much of the Affordable Care Act (ACA) became effective in 2014 and 2015. There has a been a sea change in the adoption of high deductible health plans (HDHPs) coupled with Health Savings Accounts (HSAs), which transfers more of the healthcare benefit cost burden to employees.

A survey by the International Foundation of Employee Benefit Plans1 notes the following related to employers’ cost concerns:

  • One-third of employers (33 percent) expect the greatest cost increase from ACA implementation to take place in 2016, as new reporting, disclosure and notification requirements take effect.
  • Over one-quarter (27 percent) expect the largest cost increase in 2020, when the impending excise tax on high-value plans (the "Cadillac tax") kicks in. The non-deductible 40 percent excise tax will be levied on plans that cost in excess of statutory thresholds (in 2020, $10,200 for self-only and $27,500 for family coverage), regardless of whether premiums are paid by employers or employees.

Additionally, when asked what they think the top compliance related cost drivers will be, employers replied:

  • The excise tax on high-value plans (20%)
  • General administrative costs (19%)
  • Costs associated with reporting, disclosure and notification requirements (13%)

71 percent of the employers surveyed believe their most expensive years are yet to come with 82 percent saying the law is increasing their organization's costs. Many project a 1%-6% increase in compliance expenses.

Excise (or "Cadillac") tax
The 2016 federal budget postponed the effective date of Internal Revenue Code Section 4980I ("Cadillac Tax") for two years to January 1, 2020. The Bipartisan Budget Act of 2018, passed in February 2018, extends the effective date of the Cadillac Tax two additional years through 2022.The Cadillac Tax, created by the Patient Protection and Affordable Care Act ("ACA"), is a 40% tax on the value of group health coverage over $10,200 for individual coverage and $27,500 for family coverage (adjusted for cost of living based on the consumer price index).

The Cadillac Tax has been causing stress for employers, employees, advisors, lawmakers and others ever since it was enacted. Issues still needing clarification include:

  • The types of health coverage that count towards the tax
  • Could the tax be avoided without significantly impacting employee coverage
  • How will the tax be calculated and paid
  • Could the delay in implementation indicate a possible repeal

Cost containment
Employers are taking steps to help control costs related to the Affordable Care Act. A significant number of employers responded that they have increased their emphasis on, have added, or are considering adding a high-deductible health plan (HDHP). HDHPs have lower premiums than other health plans, which can help employers avoid triggering the excise tax.

HSAs and HRAs are uniquely positioned to help ease the transition to HDHP for employers and employees.

  • Forty-two percent of employers have or are considering an HDHP with a health savings account (HSA)
  • 13 percent offer an HDHP with a health reimbursement arrangement (HRA), and
  • Almost one in 10 organizations said they had adopted a "full-replacement" HDHP strategy, where HDHPs are the only plan options provided

1. 2015 Employer-Sponsored Heath Care: ACA’s Impact

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