Time flies — we can finally see the light at the end of the tunnel for Affordable Care Act (ACA) compliance. But the last ACA requirement poses the biggest challenges for most employers, and that’s (drum roll) the excise tax slated to go into effect in 2018. Since the second round of comment letters to the IRS was submitted in October, we thought it would be helpful to launch a collection of timely, relevant articles on this important topic. These articles have been contributed by Mercer colleagues with a broad range of expertise and focus on tax-avoidance strategies and how the excise tax may affect other HR and business objectives.
So how big of a deal is the excise tax for employers? In a webcast we hosted earlier in 2015, we posed several questions to employers in an exit survey. Roughly half (52%) of the 100 attendees who took the poll told us they will need to make changes to their current medical plans to avoid the tax in 2018. And remember that health benefit cost rises faster than the excise tax threshold, so even employers that can get by in 2018 will probably need to make changes at some point to avoid the tax.
We also asked another question that has important implications for policymakers as well as employers: When employers make changes to their plans that save money, what will they do with the savings? Government projections of the excise tax revenue are based on the assumption that employers will return a good portion of the savings to employees in their paychecks. Our poll suggests otherwise: Only 5% of respondents said they planned to increase employee compensation. Granted, about half of the respondents had not made changes yet, but even if you double those planning to increase compensation, you only get to about 10%. Employers with savings were more inclined to add health-related benefits not subject to the tax, or to add to the 401(k) match. Although we make no claims that this “quick and dirty” survey is at all representative, the results tally with what a lot of us have been hearing from our clients.