Starting in 2018, employers will have to pay a 40% tax on the cost of health plan coverage exceeding $10,200 for self-only coverage and exceeding $27,500 for other-than-self-only coverage (e.g., “employee plus one” or “family” coverage). If an employer is self-insured, they are responsible for the payment; if they’re fully insured, the carrier is responsible, but this will surely impact the rates the employer pays. The tax cannot be written off corporate taxes, so it’ll sting twice.The tax is based upon the cost of the insurance an employer offers, not on the quality of the benefits offered. Unfortunately, there are a lot of firms paying Cadillac prices without having Cadillac plans; they’re overpaying. In most of these cases, the employer’s underlying base rates and a relatively high number of claims have caused their rates to jump through the years. Meanwhile, we all know that insurance prices have been steadily increasing for decades. Medical inflation and bad claims experience compounds over time to create a difficult scenario, and it’s a scenario that could cost you an extra 40% — depending on the size of your workforce — and could very quickly turn into millions of dollars you owe the government.

There are two things employers need to do:
1. Take a closer look at the health benefits you offer and the overall cost of your medical program to determine whether you’re over the threshold.
2. If you are, that means you need to take steps to reduce your exposure by reducing utilization and claims expenses.

Employers have a heavy incentive to avoid the tax. One way to do that is to reduce the coverage you offer your employees, often by raising deductibles. However, just because you raise deductibles doesn’t mean you reduce utilization or claims expense. The smart approach for employers is to keep employees as healthy as possible, and thereby reduce episodic care.

The other option is to manage your claims better to lower your expense by decreasing utilization and managing claims better, i.e., helping your employees to become healthier so that they ultimately don’t use their insurance as often. This is not a change that can occur overnight; you can’t issue a memo ordering your employees to be healthier. What employers have to do — starting now — is to think strategically about how best to make employees healthier.

In either of these scenarios, supplemental benefits can play a big role in assisting employees to cover the high deductibles by paying cash to the policyholder. These benefits not only help employees in paying medical bills but can also create a more positive atmosphere when introducing high deductible plans.
For more information on how to create plan designs that lower your monthly premiums and provide tax breaks for your company and the employees with supplemental benefits, please contact me at