Health Care Cadillac Tax Expected to Boost Voluntary Offerings

An excise tax on health plans scheduled to take effect in 2018 could mean more supplemental and voluntary benefits for employees.

Employees shouldn’t be surprise if more voluntary products make their way into benefit lineups this year and next, according to a voluntary market expert.

The open enrollment period for many companies begins this month and typically lasts anywhere from two weeks to two months.

The tax, a usage tax also known as the “Cadillac tax,” is designed to discourage employers from offering rich health benefits coverage in favor of more modest plans. The idea is to trim health care utilization to quell health care inflation, one of the goals of the Patient Protection and Affordable Care Act.

“Enrollment season has come down to a few more days, but the heavy lifting has already been done and financial advisors and brokers have already worked with clients throughout the year to see what products they want to offer,” said Greg Hammond, vice president of specialty market sales for Standard Insurance Co. in Portland, Ore.

“The excise tax, which hits Jan. 1, 2018, has many brokers and financial advisors asking whether their clients’ health plans meet the valuation of the excise tax,” Hammond said in a recent interview with InsuranceNewsNet.

Companies that decide to stick with Cadillac health plans do so to attract top talent in their respective industries, figuring that it’s cheaper to pay the penalty than to risk potential future CEOs, managers or researchers to competing employers.

Last month, Standard Insurance Co. added voluntary group accident, critical illness and hospital indemnity insurance to its group long-term disability, short-term disability, life, accidental death and disability, dental and vision products.

As the Jan. 1, 2018 date approaches, Hammond said many benefits brokers and advisors are asking whether their clients’ employer-sponsored health plans meet the threshold to trigger the excise tax, and what options are available to them with regard to plan design.

With deductibles rising for primary health coverage, more companies have made voluntary products available to employees. Many companies like voluntary products because such products are often entirely paid for by the employee.

Employees find voluntary products convenient because such products cover gaps in primary insurance and limit out-of-pocket health care expense. When voluntary products are offered under a group model, employees can buy coverage at lower rates than in the individual market.

Voluntary benefits’ sales have gone up in recent years and a survey of benefits brokers conducted by Eastbridge Consulting Group Inc. found that 56 percent of respondents perceive the ACA having boosted sales of voluntary benefits products.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.