Time flies. We can finally see the light at the end of the tunnel for 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 today is the deadline for the second round of comment letters to the IRS, we thought it would be timely to kick off a series of posts on this important topic. What will follow over the coming days are pieces written by Mercer colleagues with a broad range of expertise, focusing 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 that we hosted last week, 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 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 for revenue stemming from the excise tax 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. While we make no claims that this “quick and dirty” survey is at all representative, the results line up with what a lot of us have been hearing from our clients.
One thing we know for sure, employers want the excise tax repealed. Here at Mercer, we are doing our part to support your interests. We joined the Alliance to Fight the 40, a broad-based coalition comprising public- and private-sector employer organizations, unions, health care companies, businesses, and other stakeholders that support employer-sponsored health coverage. In addition, we are frequently invited to Capitol Hill and various branches of the government — HHS, DOL, and Treasury/IRS — to share our survey data and represent employers’ perspectives. And, in the event that repeal efforts fail, we are active in the effort to shape the regulations on the excise tax that would make it more friendly to employers and their workers. Mercer has responded to both of the Treasury’s requests for comments on the tax.
To get this series started, Geoff Manville will provide an “inside the beltway” view of what is happening with the repeal efforts, and Beth Umland will share some interesting data on why we don’t really think it is a “Cadillac” tax. You will be able to identify the pieces in this series by the picture above. For those of you who have not been to Washington, DC, since your high-school field trip here, the picture is of the Treasury Building, right next door to the White House. Enjoy the series!
Mercer met with Congressional staff on June 11 to provide input on developing legislation that would modify the ACA’s 40% excise tax on high-cost plans. Mercer recently submitted comments to the IRS on how to implement the tax starting in 2018, but more fundamental reform can only be achieved through enactment of new legislation.
In our meeting, we outlined guiding principles that should provide a framework for evaluating any legislative change to the excise tax. These principles include:
- Plan value — The tax should not apply to typical plans, regardless of plan cost. Employers should not be penalized if costs are high due to factors such as geography, coverage of a high-cost population, and industry.
- Plan cost — The tax should not apply to plans that effectively control costs, regardless of actuarial value. Employers — and their employees — should continue to benefit from cost management initiatives, including health management and network/ supply-side strategies.
- Innovation — The legislation should promote programs and plan features that encourage optimal healthcare use.
- Predictability — The tax should be predictable when setting future year plan offerings or negotiating collective bargaining agreements. The calculation methodology should appropriately combine standardization and actuarial judgment.
- Simplicity — The process for determining and submitting the tax should be straightforward.
The excise tax passed as part of the ACA does not meet these objectives. We explained the benefits of legislation that would allow plans to avoid the tax by either maintaining costs below a dollar threshold (with adequate annual increases) or by satisfying a safe harbor through offering plans with an actuarial value no higher than a specified threshold. We shared Mercer survey data and other statistics illustrating the dramatic relief that could be achieved if the proposed legislation becomes law. Hill staff was keenly interested in the issues we raised and the supporting data. We will continue to share data and our perspective to support new legislation that can benefit plan sponsors.
While the recent IRS request for comment on implementing the 2018 excise tax on high-cost coverage gave us insight into what the IRS is thinking, it isn’t the formal guidance that we desperately need. This makes it tough on employers heading to the bargaining table this year. A recent article in The Wall Street Journal highlights the challenges facing the big three automakers as they prepare to negotiate this summer with the UAW, which historically has been very protective of its members’ health benefits. In other words, benefits are rich and costs are high. The law imposes a 40% excise tax on the annual cost of health plan premiums above $10,200 for individual coverage and $27,500 for family coverage. While it’s not clear whether UAW workers are enrolled in plans with costs that currently exceed the threshold, the employers and the UAW are concerned that, if costs continue to rise at their current rate, by 2018 the plans could face significant penalties. If they do, who pays?
Of course, the other option is to find ways to reduce plan cost and avoid triggering the tax. Typically, this would mean higher out-of-pocket cost for plan members, which unions have resisted. The big three automakers aren’t alone in facing this dilemma. Mercer survey data shows that, across all industries, large employers with at least 65% of their employees in unions have higher average costs — $13,659 per employee, compared to $11,421 among large employers with no employees in unions. What’s driving the higher cost? Only 8% of their employees are enrolled in a low-cost consumer-directed health plan, compared to 23% nationally. When a PPO is offered, the median individual deductible is $300, compared to $500 nationally, and 18% of sponsors don’t require any deductible, compared to just 8% nationally. In fact, virtually all cost-sharing provisions are lower among heavily unionized employers. And while these employers provide similarly robust health management programs, they are less likely to provide financial incentives to participate in the programs or to improve health habits. For example, only 13% provide an incentive for non-tobacco use, compared to 30% of employers with no employees in unions.
Where union plans are even more generous, however, is with premium contribution levels. Nearly a fifth of the unionized employers require no contribution at all for employee-only PPO coverage, compared to just 4% of the non-union employers, and the average contribution is just 15% of premium, compared to 24%. And when the unionized employers do offer a high-deductible health plan with an HSA, only 57% require any employee contribution, compared to 92% of the non-union employers. Low employee contributions don’t increase the risk of triggering the tax, since the threshold is based on total plan cost, but they do increase cost of the employer. Union employers looking for ways to avoid the tax could focus on plan design changes — like raising deductibles — to lower the total premium cost and yet still maintain union-friendly contributions that are below market.
Union plans also have cost drivers beyond their control — perhaps most significantly, their employees tend to be older. Adjustments for employee demographics is one of the many areas where we await guidance. That’s where these early challenges facing unionized employers could benefit the masses. This is a rare time where we find employers and unions on the same side of the table in Washington — pushing the government for guidance.
Do you know when your plans will hit the threshold? Our excise tax calculator will help you estimate exposure for the medical plan cost component — you just need to enter your number of employees and annual cost by medical plan tier.
Despite last week’s cold snap, the bloom of cherry blossoms along Washington DC’s Tidal Basin is now under way – a peaceful sight that belies this stormy moment in Congress, where new healthcare legislation is being debated and the headlines seem to shift from moment to moment. However, one thing is for sure: any legislation affecting the US healthcare system must consider the impact on employer-sponsored health insurance – the source of coverage for 177 million Americans, 16 times the number enrolled in public exchanges.
That’s why the leadership of MMC companies Mercer and Oliver Wyman created a health policy group to help formulate MMC’s views on ACA repeal-and-replace legislation. Our efforts led to the issue of a policy paper that showcased original Mercer research on changing the tax treatment of employer-sponsored coverage.
Last month, we took this research to the US House of Representatives to meet with policymakers actively working on the newly proposed American Health Care Act, or AHCA. We demonstrated that the excise tax on high-cost plans, currently law under the ACA, is not an effective method of penalizing rich “Cadillac” plans because plan design is only one factor affecting plan cost and often less important than location and employee demographics.
This would also be true of a cap on the employee individual tax exclusion for employer-provided health benefits, a provision included in an early draft of the AHCA and favored by powerful voices such as House Speaker Paul Ryan (R-WI), House Ways and Means Chair Kevin Brady (R-TX) and new HHS head Tom Price. Mercer had also modeled the impact such a cap would have on the effective tax rates of Americans based on their income. The hardest hit, by far, would be lower-paid workers with families. Some staffers faced with this information for the first time were visibly struck.
When the bill was released for mark-up, the cap on the exclusion was not included, and the Cadillac tax was delayed until 2025 (and possibly 2026). But while we were pleased with this outcome, we also knew the bill was a long way from becoming law and the cap could easily resurface.
It was my privilege to meet last week with Senators Rob Portman (R-OH) and Tom Carper (D-DE), both members of the Finance Committee; Senator John Cornyn (R-TX), Majority Whip and Member of the Finance Committee; and Senator Orrin Hatch (R-UT), Chairman of the Finance Committee. I urged them, first and foremost, to preserve the health benefit tax exclusion, and secondly, to liberalize HSA rules. I also discussed the potential impact of proposed cuts to the Medicaid program, and our concern that a surge in uncompensated care would cause providers to shift cost to private group plans – making it harder for employers to continue to provide adequate coverage to their workers.
Our work is far from done. I look forward to returning to Washington as the legislative debate continues – to advance the goal of preserving and enhancing the employer-sponsored healthcare system that is a stable source of good health coverage for approximately half of all Americans.
Join me on LinkedIn to continue the conversation. How will changes in healthcare policy have an impact on your organizations and people?
We collect a lot of data in Mercer’s National Survey of Employer-Sponsored Health Plans (as those of you who have taken the survey well know — sorry and thank you!), but each year the number we look at first and most closely is the average annual health plan cost per employee. After almost 30 years of studying health benefit cost, we’ve found there are certain trends so predictable that you don’t even think about them anymore. For example, average cost will always be lowest in the South and highest in the Northeast or West. If it’s not, check your work — you’ve mislabeled the data.
That’s why we worried about the so-called “Cadillac tax” from the beginning. It was clear to us that factors other than a rich plan design affect plan cost. Geographic location is one, but employers with older workforces also have higher cost. (Our survey doesn’t ask employers about the health risks in their populations, but in general, older people use more health care.) In addition, per-employee cost rises when more employees elect dependent coverage. This graph shows the 2014 average cost per employee for large employers — $11,641 — and how it varies based on location, employee age, and dependent coverage election.
To find out how many employers were at risk of hitting the tax threshold, we asked last year’s survey respondents to provide premiums for their highest-cost medical plan. We didn’t attempt to include other costs that might go into the calculation, like FSA contributions or onsite medical clinics We trended that number forward and compared it to the excise tax threshold and found that, based on medical plan cost alone, about a third were likely to reach the cost threshold in 2018. We then compared this group of “high-cost” plans to the rest in terms of plan design and demographics. If these were truly “Cadillac” plans, employers would have plenty of room to shift costs to employees to keep plans from hitting the tax threshold. But what we found is that while employers with the high-cost plans do have somewhat higher deductibles on average, it’s far from night and day.
Among the small, mostly fully insured, employers with plans on track to hit the threshold in 2018, the average individual in-network PPO deductible is already over $1,000. Among the large employers with “high-cost” plans, the average deductible is $640. But it’s not that much higher — only $712 — among the rest.
|Employers with high-cost plan*||Employers not offering high-cost plan|
|Average PPO deductible|
|• Small employers||$1,313||$1,729|
|• Large employers||$640||$712|
|Average % of employees in unions among large employers||23%||13%|
* Plan cost estimated to hit threshold by 2018
Source: Mercer’s National Survey of Employer Sponsored Health Plans, 2015
So what else is different about these two employer groups? Not average salary — it’s about the same. The high-cost employer group has an older workforce. They cover more dependents. And they are also more likely to have more employees in unions. Union leaders have worked hard over the years to keep relatively rich health benefits as part of their workers’ total compensation package — but unions also tend to have older workers with more dependents.
That’s why you won’t ever catch me using the term “Cadillac tax” — because it’s not.
Ever since the ACA was signed into law, the excise tax on high-cost plans has been the number-one concern of employers. The statute defining the excise tax is contained in seven pages of the law. That’s it — seven pages. Don’t get me wrong, what is outlined is complicated. But seven pages is nothing in a law that originally spanned 2,000 pages.
The Congressional Budget Office has produced estimates, which they periodically update, of the revenue expected from the excise tax. Roughly 25% of the estimated revenue will stem from excise tax receipts, but the lion’s share — 75% — will come from increased income and payroll tax revenue from the higher taxable wages that employers are predicted to pay to offset the reduction in the health care benefits that is expected to occur because of the excise tax. The CBO anticipates many employers and workers will shift to health plans with premiums that are below the specified thresholds to avoid paying the tax. This is certainly supported by Mercer survey data, which finds that virtually all employers that believe they are at risk for hitting the excise tax threshold say they will take steps to avoid it, and well over half say they will do “whatever is necessary.”
Earlier this week, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) released updated budget projections for the ACA for 2016-2025. This updates their January 2015 baseline projections. Total revenue projections for the excise tax are now $87 billion, down from $149 billion in January. The amount decreased because premiums are now projected to be lower (that’s a pat on the back for all of us). They also expect even fewer workers to be enrolled in employment-based insurance plans with premiums that exceed the excise tax thresholds specified in the ACA. The government is still applying the same 25%/75% assumption for where the revenue will come from. Given the $62 billion decrease in the estimated revenue, this suggests that the employer share will be about $2 billion a year over the seven-year period from 2018-2025 (although it’s likely it would be less in the early years and build over time).
In addition, the CBO and JCT now project that, on net, one to two million fewer people will move out of employment-based coverage under the ACA than they projected previously. A smaller loss of employment-based coverage means that less nontaxable compensation in the form of health benefits will be converted to taxable compensation as a result of the ACA. Moreover, the downward revision to projected premiums for employment-based coverage means that the losses in such coverage as a result of the ACA will yield smaller increases in taxable compensation and therefore smaller increases in tax revenues.
This explains why employee pre-tax contributions to flexible spending accounts and health savings accounts are proposed to be included in the excise tax calculations. Certainly, for an employer trying to avoid the tax, eliminating pre-tax contributions will be one of the easiest ways to reduce cost for the excise tax calculation while still preserving the basic health care benefits package. It’s as if the government doesn’t want to take those pre-tax account contributions away from employees, but they want employers to do it! Wouldn’t it be a whole lot easier if the government made a few straightforward changes to raise revenue in lieu of this complicated excise tax scheme? Lots more to come on this topic!
In an unprecedented move, JAMA published President Obama’s status report on the ACA. In it, the President details the impact of the ACA using charts and data from various sources and offers up some suggestions for what should happen next.
The law was passed with three goals – to provide health insurance to those without it, to bring down the cost of care, and to improve healthcare quality. Progress toward the first goal is well documented: nearly 17 million more people have coverage today as a result of the ACA. That is a clear victory. Less clear, however, is the ACA’s impact on cost, at least in employer-sponsored health plans – which still cover more than half of all Americans with insurance. The report asserts that the ACA has slowed cost growth in in private insurance, but hasn’t resulted in a higher out-of-pocket cost share for those enrolled in employer plans.
That improbable combination raised some eyebrows here at Mercer. The report mentions a few of the more popular ACA mandates – preventive care at no charge, eliminating life-time maximum benefits, and expanding dependent eligibility. Those provisions could only increase cost, while at the same time another ACA provision, the excise tax, was established to penalize health plans that cost too much! The President defended the excise tax in his article, but fact is that it has led employers to shift cost to employees, chiefly with high-deductible health plans. Our data shows that fully one-fourth of all covered employees are now in high-deductible consumer-directed health plans, and even deductibles in traditional PPOs have risen at a faster pace than healthcare cost increases. That’s not surprising, given that three years ago, nearly half of employers were on track to hit the excise track threshold in 2018, the year it was first supposed to go into effect. That number has dropped each year as employers have taken steps (often unwanted, as our recent survey found) to shift cost to employees to lower cost. We’ve maintained from the beginning that the “Cadillac tax” was going to unfairly hit plans that had high cost for reasons other than rich plan design, and were pleased to learn yesterday that more than 300 members of the House of Representatives – nearly 70% – have signed onto legislation to repeal the tax.
I will say that I wished President Obama could have given employers a little more credit! Compliance with the ACA has been a huge effort and expense to employers – new fees, communications requirements, reporting requirements and compliance costs – and in the end, they continue to cover all the same people they have always covered. That’s more than half of all Americans with health insurance.
As for the future of the ACA, so much will be determined by what happens in elections and how lawmakers can work together. Will there be a public option? Will Americans age 50+ be able to buy into Medicare? Will employees be taxed on their employer-sponsored health insurance? Time will tell. In the meantime, employers remain committed to providing healthcare benefits to their employees.
A question relating to last week’s posts about managing health savings accounts (HSAs) after the excise tax goes into effect prompted an interesting discussion among the authors (and their go-to compliance expert) about the pros and cons of continuing to offer employees the opportunity to make pre-tax payroll HSA contributions. We thought we’d share it in Q&A form so you can follow along. Warning — it gets a little complicated, but that’s the nature of the beast. Welcome to our world.
Dee (an astute reader): The vast majority of employers that offer HSA-qualified high-deductible health plans (HDHPs) offer the ability for employees to make pre-tax payroll HSA contributions and even encourage them to do so. For now, such contributions count towards the calculation of the gross cost of “high cost” health coverage for excise tax purposes. Should employers take away the pre-tax payroll HSA contribution feature from their cafeteria plans? Otherwise, an HDHP with a lower gross cost than a traditional PPO plan may actually end up triggering a greater excise tax because any employee pre-tax payroll HSA contributions would get tacked on to the total cost of the employer’s health coverage.
Joe K. (author of Managing FSAs to Avoid the Excise Tax): First, how confident are we that employee pre-tax payroll HSA funding will count toward the excise tax? Can employers hold out hope they won’t need to make a change?
Dorian (compliance expert): We won’t know for sure until we receive formal regulations next year. However, our current understanding based on the existing legislation, as well the proposed position that the IRS telegraphed in their “pre-guidance” issued earlier this year, is that employee pre-tax payroll HSA funding will count toward the excise tax.
Jay (author of Health Savings Accounts and the ACA): I would advise a plan sponsor to consider a hybrid approach — continue permitting (or making) pre-tax payroll HSA contributions up to the excise threshold, at which point any remaining allowable HSA contributions are made post-tax. For the employee’s convenience, the employer would facilitate employees’ post-tax HSA contributions via payroll.
Joe B. (author of The Unlimited Possibilities of the Limited-Purpose FSA): Well, ideally we want to optimize. But it seems to me to be more complex to have both pre- and post-tax HSA payroll contributions, rather than just going all post-tax with the employee claiming an above-the-line deduction for the entire HSA contribution when filing federal and state tax returns. I realize there is a little efficiency and tax savings lost, but that needs to be weighed against administration and communication considerations. Further, the employer could make a contribution when cost is within the thresholds, and let the employee contributions go post-tax.
Jay: Either a hybrid model or the seemingly simple move from pre- to post-tax brings administrative and communication considerations. Meanwhile, the efficiency opportunity could be substantial for the employer and warrant a hybrid model. I’d not likely recommend that an employer drop employee pre-tax payroll HSA contributions entirely unless the payroll/admin modifications were going to absorb at least half the current-year tax savings.
Joe B.: Good point. And now that I think about it, it’s really not any different than what some 401(k) plans do. If I elect to contribute more than the tax-favored limit, I can click a box to have the excess amounts contributed on an after-tax basis.
Joe K.: Although in some situations the tax savings just won’t be that high. We can estimate based on employer-specific data, such as the current level of employee funding and employee pay relative to the FICA limit.
Dorian: Keep in mind that if you don’t allow pre-tax payroll contributions through a cafeteria plan, you must meet the rigid, and often unworkable, HSA comparability rules for employer HSA contributions — which are especially problematic where an employer provides matching HSA contributions or HSA contributions based on wellness activities. Avoiding the comparability rules is one of the substantial benefits of allowing employee pre-tax payroll HSA contributions.
Joe K.: Some employers provide the same HSA funding to all employees. However, it sounds like eliminating an employee’s ability to make pre-tax payroll HSA contributions can be very limiting.
Dorian: It can be. To meet the comparability requirement, an employer generally needs to offer specified classes of “comparable participating employees” the same level of HSA funding. That not only effectively prevents an employer from using an HSA for wellness incentives, it may also mean the employer can’t vary HSA funding by salary band (certain exceptions apply). And there are other requirements as well, so if you do plan to meet the comparability rules, you’ll want to take a close look at all of the associated provisions.
Jay: Can an employer avoid these comparability rules if employees can partially fund their HSA on a pre-tax basis? If so, it sounds like another reason to consider a hybrid model.
Dorian: Possibly, but the law is not clear. We need to continue monitoring developments in this area.
The ACA’s 40% excise tax will apply to “high cost employer-sponsored health coverage” as of 2018. “High cost” is defined as $10,200 for single coverage and $27,500 for family coverage. That seems fairly straightforward — until you take into account that the tax is calculated based on the “aggregate cost” of applicable employer-sponsored coverage over the threshold, not just medical premiums.
Health account funding is one of the components that must be considered when determining exposure to the excise tax. This includes:
- Health Flexible Spending Accounts (FSAs).
- Health Reimbursement Accounts (HRAs).
- Employer contributions to a Health Savings Account (HSA).
- Employee pre-tax contributions to an HSA.
Dependent care FSAs and employee funding to an HSA outside of an employer’s health plan are not considered when projecting exposure to the excise tax.
We expect that the exposure may be measured at an employee level. For example, if the cost of single coverage for a medical plan is $9,000 and an employee elects to contribute $2,000 to a health FSA, then the aggregate cost for that employee would be $11,000 ($9,000 plus $2,000). The excise tax for that employee would be $320 ($11,000 minus $10,200, multiplied by 40%). This calculation does not consider the average FSA contribution for other employees may be lower than $2,000.
The following table outlines several strategies to mitigate an employer’s excise tax exposure from a health FSA:
|Limit FSA contributions.||The maximum FSA contribution limit is $2,550 for 2015 and is indexed annually. An employer can reduce the maximum allowed based on the gap between the excise tax thresholds and the employer’s highest-cost medical plan.||
Benefit: Employees can continue to contribute to traditional FSA.
Drawbacks: Maximum funding is decreased and the employer will need to revisit the maximum annually.
|Vary FSA account funding by medical plan option.||Similar to the above, but allow additional FSA funding for plans with lower medical plan costs.||
Benefit: Allows additional FSA funding for enrollees in lower cost plans; can help encourage migration to less costly plans.
Drawback: Cumbersome to administer.
|Change FSA so it doesn’t count against excise tax threshold.||Implement a limited purpose FSA that can only be used for dental and vision.||
Benefit: Allows maximum funding to FSA. FSA funds are often accessed for dental and vision expenses.
Drawback: FSA cannot be used for medical expenses.
|Eliminate the FSA.||Removal of the account.||
Benefit: Employees may have opportunity to fund an HSA if enrolled in a qualified HDHP.
Drawback: Employees lose access to a valued tax benefit
If you offer an FSA, you should consider possible changes prior to open enrollment for the 2017 plan year. An employee may adjust their FSA election in 2017 if he or she is aware the FSA will change in 2018. For example, if an employer allows funds to roll over to the next year but won’t allow new funding in 2018, an employee may elect a higher FSA amount for 2017 to help cover expenses in 2018. On the other hand, if an employer plans to offer an HSA-qualified plan in 2018, an employee may choose to contribute less in 2017 so that their balance is depleted prior to the end of the year. If an employer allows an FSA roll-over, remaining FSA funds can disqualify an employee from opening an HSA as of January in the following year.
While we are still waiting for regulatory guidance that may influence the considerations and options described above, it’s not too early to start planning.
Employers have made their opinion about the excise tax clear. There is another Affordable Care Act (ACA) provision, however, that irks them nearly as much: the employer mandate. In our recent survey of 644 employers, we asked employers what changes they would like to see made to the ACA. Repealing the excise tax was first, with 85% in favor, but repealing the employer mandate was second, favored by 70%. It’s not that employers don’t want to offer coverage; it's that proving they offer coverage is so much work.
Following closely behind on the employer “wish list” is changing the definition of a full-time employee to 40 hours per week. Employers and policy makers have debated this issue since the law passed. There has been support from lawmakers but the cost associated with changing the definition is the major deterrent holding up a change.
Rounding out the top four is repeal and replace. This is one of the most surprising insights from our survey. Fifty-four percent of respondents favor a repeal strategy even though they don’t know what a replace strategy would look like. You may want to be careful what you wish for, especially in light of the hearing last week on employee tax exclusion for employer-provided health benefits.
Are you interested in learning more about the ACA’s impact on employers and how they are responding? Join us for our April 28 webcast where we’ll share more of the highlights and insights from our latest survey.
Since the earliest days of the excise tax, we’ve been explaining to policymakers, the media, and anyone who would listen that the cost of health care coverage is driven by many factors other than the richness of the plan design. Geographic location is just one of the more obvious. As anyone who lives in New York City or San Francisco can tell you, some places are just more expensive than others. And cost-of-living is just one factor affecting prices in a given health care market – competition and variations in provider practices come into play as well. So you’d think we’d be pleased by the recent announcement, discussed in this Business Insurance article, that the administration is now proposing revisions to the excise tax to address cost variations by state. Unfortunately, it is not an adequate fix for the geographic cost differences. In its upcoming 2017 federal budget, the administration will propose that in any state where the average premium for “gold” coverage on the state's individual health insurance marketplace exceeds the Cadillac-tax threshold under current law, the tax trigger would be set at the level of that average gold premium. First, health care cost varies by market, not state. But in addition, premium rates for individual plans on the public health exchange are generally lower than in employer plans because the networks are smaller and have targeted the lowest-cost providers. Because of this, there may only be a few states where the average gold plan cost is over the tax threshold. Finally, and perhaps most importantly, to use the average cost of a gold plan as a trigger – a plan with an actuarial value of 80%, which is very typical of employer plans today – seems like a low-ball match for an adjustment to the threshold for a “Cadillac” plan.