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Firms Could Cut Health Care To Skirt Tax: Study

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A study by Mercer finds 63% of employers say they would cut health benefits to avoid paying the excise tax included in the Senate’s proposed Patient Protection and Affordable Care Act.

One in 4 employers offer health coverage that would be deemed “too generous” and thus be subject to the act’s 40% non-deductible tax on the excess value, according to Mercer, an arm of Marsh & McLennan Companies Inc., New York.

In general, excess annual costs under the PPACA would be those above $8,500 for employee-only coverage or $23,000 for family coverage, starting in 2013. Higher annual cost thresholds-$9,850 and $26,000-would apply to retiree plans, coverage for certain workers in high-risk jobs and coverage in certain high-cost states.

Annual costs would include employer-paid, employee-paid, pre-tax and after-tax premium or premium-equivalent amounts for the health, dental and vision coverage. Also included would be pre-tax contributions to flexible health spending and employer contributions to health reimbursement and health savings accounts.

The percent of employers affected by the cap would increase annually under the act, because costs would be tied to the annual consumer price index plus 1%, which is about half the average health care trend, Mercer notes.

Of employers surveyed, 23% said they would maintain their current plan but pass along the cost of the tax to their employees. Just 2% said they would keep their plan but absorb the tax themselves. These employers may be constrained by union agreements from shifting the cost, or they may simply feel that out-of-pocket costs are already as high as their employees can tolerate, Mercer said in its survey report.

Of responding employers, 7% would terminate their high-cost plan. Among small employers, which typically offer just one medical plan, 9% said they would terminate their plans.

Mercer conducted the survey in early November among 465 employers sponsoring health plans. Respondents included roughly equal numbers of small employers (under 500 employees), mid-sized employers (500-4,999 employees) and large employers (5,000 or more employees).