“Will the ‘Cadillac tax’ spur a major shift by large employers into private Exchanges?”

Employers will lean onto private exchanges. Will the employee benefit–well that is debatable.


This tax, if implemented, will drive changes in employer and employee behavior.  Employers know that on or before 2031, the typical family healthcare plan will reach the excise tax threshold. The Cadillac tax is indexed to inflation (Consumer Price Index) and not medical inflation, and rather quickly will result in the middle class health plan subscriber absorbing the tax with an ‘average plan’ hitting the threshold.


Employers have two options either reduce their tax by cutting benefits or reduce employees’ benefits, in effect passing the tax onto employees.  Employer acceptance of independent retirement accounts (IRAs), health maintenance organizations (HMOs), and consumer-directed health plans (CDHPs) will grow as they push premiums under the threshold, reallocating employee compensation into taxable wages and salaries and away from nontaxable insurance benefits. The affect is American employees and their families will pay a greater share of their compensation to taxes.


The conversation then refocuses towards private insurance exchanges.  Supported by the SterlingRisk Employee Benefits Group, there are four primary advantages for employers considering private exchanges: 1. Wide insurance products to choose from 2. Employee buys what they value and employers have fixed budget allocations 3. Increases employee satisfaction through greater personalized benefits and 4. Strealined benefits administration makes for easier change reporting.


Flipping to the employee perspective, there are challenges.  The greater choice among health plans is likely to cause confusion for employees.  Increased enrollment in consumer-directed health plans means we expect the employee to be better educated.  Most concerning is the high probability for increased financial burden through defined employee contributions. We know how the shift in private-sector employer-provided retirement plans from defined benefit plans to defined contribution plans, turned out for employees.


Greater adoption of wellness incentives, tobacco-use surcharges and worksite clinics will be required increasing employee cost sharing.  Additionally, employers may carve out dental and vision benefits from existing health care plans because they don’t trigger the excise tax when written under a separate benefit plan.

Previous articleTaught to Succeed – Not How to Fail
Next article“Will private Exchange activity ultimately gravitate toward mostly single carrier Exchanges? Or towards multi-carrier Exchanges? Or will both models remain prevalent?”
Peter is a healthcare business and technology executive, recognized for Digital Innovation by CIO 100, MIT Sloan, Computerworld, and the Project Management Institute. As Managing Director at OROCA Innovations, Peter leads the CXO advisory services practice driving digital strategies. Peter was honored as an MIT Sloan CIO Leadership Award Finalist in 2015 and is a regular contributor to CIO.com on innovation. As Head of Information Technology, Peter was responsible for Connecticut’s Health Insurance Exchange’s (HIX) industry-leading digital platform transforming consumerism and retail oriented services for the health insurance industry. Peter championed the Connecticut marketplace digital implementation with a transformational cloud-based SaaS platform and mobile application recognized as a 2014 PMI Project of the Year Award finalist, CIO 100, and awards for best digital services, API, and platform. He also received a lifetime achievement award for leadership and digital transformation, honored as a 2016 Computerworld Premier 100 IT Leader. Peter is the author of Learning Intelligence: Expand Thinking. Absorb Alternative. Unlock Possibilities (2017), which Marshall Goldsmith, author of the New York Times No. 1 bestseller Triggers, calls "a must-read for any leader wanting to compete in the innovation-powered landscape of today." Peter also authored The Power of Blockchain for Healthcare: How Blockchain Will Ignite The Future of Healthcare (2017), the first book to explore the vast opportunities for blockchain to transform the patient experience. Peter has a B.S. in C.I.S from Bentley University and an MBA from Quinnipiac University, where he graduated Summa Cum Laude. He earned his PMP® in 2001 and is a certified Six Sigma Master Black Belt, Masters in Business Relationship Management (MBRM) and Certified Scrum Master. As a Commercial Rated Aviation Pilot and Master Scuba Diver, Peter understands first hand, how to anticipate change and lead boldly.