The implementation of the 40 percent excise tax on high-cost employer-sponsored health plans will only affect a handful of state governments, and most will have time to adjust employee benefits to minimize their exposure.
Here are four key findings from Moody’s report.
1. The Cadillac tax will impose greater costs on state governments over time. Moody’s analysis indicates by 2028, costs for state governments could reach $13 billion, compared to no more than $2 billion (and likely less) upon 2018 implementation. The impact in 2018 would not exceed about 0.2 percent of 2014 aggregate state operating revenues.
2. The health benefit structure will drive a state’s tax exposure. The extent of a state’s exposure to the Cadillac tax will be determined by the initial level of premiums and the mix between single and family coverage. The coverage mix is significant because the thresholds above which the tax is levied are different and inflation varies for single and family premiums. The mix also varies substantially, ranging from about 80 percent of employees carrying family premiums in Utah to about 20 percent with family coverage in Mississippi.
Moody’s says Oregon and New Hampshire have unfavorable combinations of cost and coverage mix that would lead them to pay the greatest amount of tax compared to revenues by calendar 2028.
3. States can mitigate the impact of the Cadillac tax by changing health coverage. Governments can adopt approaches commonly used in the private sector, such as reducing benefits, increasing deductibles, creating additional benefit tiers and cutting back on flexible spending and similar accounts.
For instance, Oregon recently changed its insurance premium costs to reduce its exposure to the tax. However, not all states have this option given contractual and constitutional barriers, such as in Illinois and Alaska.
4. Congress may rescind the tax or scale it back. A growing chorus of opposition from both sides of the partisan divide may lead lawmakers to postpone, adjust or eventually repeal the Cadillac tax. However, state governments that delay action in hope the tax goes away risk suffering greater impacts.
For states that have expanded Medicaid, the Cadillac tax liability will coincide with additional state Medicaid cost pressure as federal subsidies decline.
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