Effect of recently enacted laws on employer-sponsored group health plans

Employer-sponsored group health plans have been directly impacted by changes under three statutes enacted since December 22, 2017. This Benefits Alert summarizes the new laws’ healthcare provisions affecting employer-sponsored plans.

The Tax Cuts and Jobs Act of 2017 (TCJA) was enacted on December 22, 2017, with a healthcare-specific provision that reduces the individual mandate penalty of the Patient Protection and Affordable Care Act (ACA) to $0 beginning in 2019.

• For group health plan sponsors, perhaps a more significant provision is the TCJA’s change to the methodology in which thresholds for the high-cost health plan excise tax (“Cadillac tax”) are indexed. Originally, the ACA increased the cost thresholds, triggering the tax based on the Consumer Price Index for Urban Consumers (CPI-U). However, the TCJA changed the basis for Cadillac tax (and other) purposes, from CPI-U to Chained CPI-U, which has measured, on average, approximately 0.25 percentage points lower than CPI-U (or about 90% of CPI-U). This change will cause employer health plans to cross the cost threshold earlier than under the original law and expose them to higher excise taxes unless employers make plan design changes or other action to avoid the excise tax. The estimated impact of this change is an increase of approximately 2% to 4% in a plan’s long-term cost, based on Milliman’s healthcare cost trend model.

The Continuing Appropriations Act, 2018 (CAA ’18), signed on January 22, 2018, delayed the application of the Cadillac tax to 2022 from 2020. For any employer health plan projected to begin paying the excise tax in 2020 or 2021, the delay will provide relief for one or two years. For plans not projected to have to pay the Cadillac tax prior to 2022, this delay will have no effect.

• Also in the CAA ’18, for 2019 only, fully insured plans are exempt from the ACA’s health insurer fee (HIF), an annual assessment that health insurance companies typically pass on to plan participants through premiums. This moratorium could produce a one-year savings of 2% to 3% for fully insured plans covering active employees and/or non-Medicare retirees. For Medicare Advantage plans, the percentage reduction in premiums will be much larger, because the HIF is applied to estimated premiums prior to reimbursements by the Centers for Medicare and Medicaid Services (CMS).

Finally, in the Bipartisan Budget Act of 2018, signed on February 9, 2018, two changes impact employers with an employer group waiver plan (EGWP).

• The Medicare Part D coverage gap (which under prior law would occur when a beneficiary accumulates $3,820 in total drug spending in 2019) will be eliminated in 2019 instead of 2020. The law also provides a reduction in beneficiary coinsurance to 25% (from 30%) in 2019, which is the same coinsurance the beneficiary pays prior to the coverage gap (hence the coverage gap is “closed”).
• Simultaneously in 2019, the pharmaceutical manufacturer discounts for Medicare beneficiaries reaching the coverage gap will increase to 70% from 50%.

The net effect of these two changes on EGWPs is that an employer’s health plan liability will be reduced to 5% (from 20%) of total prescription drug costs in the coverage gap, which will result in savings to the employer (see “How will the Bipartisan Budget Act of 2018 impact Part D in 2019 and beyond?”).

For further information about how these changes may impact your plans, please contact your Milliman consultant.

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