ACA Cadillac Tax Delay Didn’t Stop Employer Strategies

Despite already modifying their benefit plans last year, employers expect their health care costs to rise again in 2016, which will require additional changes, according to the Employee Benefits Trend Study released by Wells Fargo Insurance, part of Wells Fargo & Co.

Fifty eight percent of employers surveyed expect their medical plan costs to exceed the thresholds for the Affordable Care Act (ACA) excise tax, or “Cadillac” tax, which was originally to take effect in 2018, but has been delayed until 2020. Additionally, 70% of employers expect their budgets for benefit plans to increase, as human capital and health and productivity remain key issues for businesses to manage.

Half of the employers in the study said they will continue to make changes to their plans either this year or in 2017 by adding a high deductible plan option (52%), increasing the employee contribution percentage (56%), or increasing co-insurance features (55%). Employers are also making strategic changes to plans that address not only the physical well-being of their employees, but also chronic condition management and mental, financial, and social well-being.

For example, as more employers offer high deductible health plans, the C-suite is also aware of the financial exposure that employees face with these types of plans. As a result, they are looking to mitigate those costs by offering voluntary benefits solutions (e.g. critical illness and accident insurance). In addition, employers of all sizes are seeking ways to encourage a healthier and more productive workforce. Fifty one percent of companies expect to increase wellness offerings, and 37% will add wellness incentives or penalties to their programs in 2016.

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The study found employers are focused on return on investment (ROI)—91% of C-suite respondents said improving the health of employees is important as it correlates with lower medical costs, reduced absenteeism, and increased productivity.

Aside from becoming compliant with the ACA and lowering costs, the study also found that C-suite executives are making changes to their plans because of an increased focused on attracting and retaining talent, with 62% saying it is a top concern, up from 45% last year.

“As they balance business goals with controlling cost, employers are also exploring additional changes to their plans to avoid the Cadillac Tax,” says Dan Gowen, national practice leader with Wells Fargo Insurance’s Employee Benefits National Practice. “The rapidly changing market and delay in the tax implementation provides another opportunity for employers to be creative as they continue to refine their benefit plans.”

The Employee Benefits Trend Study surveyed more than 650 middle-market companies and large corporations. Wells Fargo Insurance’s 2016 Employee Benefits Market Outlook provides additional insights about trends in the market.