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Survey Finds Tax on Costly Health Care Plans Would Reduce Employer-Provided Benefits

Nearly two-thirds of employers say they would reduce health care benefits if Congress passes health care reform legislation that would impose a tax on costly health insurance plans, according to a survey.

December 4, 2009
Related Topics: Medical Benefits Law, Compensation Design and Communication, Benefits, Latest News
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Nearly two-thirds of employers say they would reduce health care benefits if Congress passes health care reform legislation that would impose a tax on costly health insurance plans, according to a survey released Thursday, December 3.

The legislation under consideration on the Senate floor would impose a 40 percent excise tax on health insurance premiums exceeding $8,500 for individual coverage and $23,000 for family coverage, starting in 2013.

The cost threshold triggering the tax would be somewhat higher for plans covering early retirees and employees in certain “high-risk” industries. The tax would be paid by insurers and third-party administrators, but the cost surely would be passed back to employers, benefits experts say.

And that is something many affected employers want to avoid.

According to the Mercer survey of 465 health plan sponsors, 63 percent of respondents said they would cut benefits to reduce costs so as not to hit the cost threshold triggering the tax.

On the other hand, 23 percent of respondents said they would maintain their plans and share the cost of the tax with employees. Just 2 percent of employers said they would fully absorb the cost of the tax.

Among employers saying they would reduce benefits, a significant majority—75 percent—said they would increase deductibles and co-payments.

Additionally, 40 percent said they would add a new low-cost plan as an alternative to their costly plan, 32 percent said they would replace their plan with a low-cost plan, and 19 percent said they would terminate their contributions to flexible spending accounts, health savings accounts and health reimbursement arrangements.

Mercer previously estimated that about 20 percent of employers offer health care plans, which, if not changed, would be subject to the excise tax.

The survey also found that employer attitudes on a key provision in the legislation—imposing a financial penalty on individuals who do not enroll in a health care plan—vary significantly by company size.

For example, 65 percent of employers with at least 5,000 employees are in favor of an individual mandate. That compares with 45 percent of employers with fewer than 500 employees, and 47 percent of employers with 500 to 4,999 employees.


Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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