Organizations involved in an acquisition need to pay special attention to the Cadillac tax before they sign on the dotted line. The tax can cause complications ― and cost considerable money ― if its effects are not thoroughly vetted before an agreement is signed.
So what are special considerations?
If an inherited workforce is to keep its current health care benefits — a scenario often written into the purchase agreement and applicable for a certain period of time — you really need to know what that means in terms of your financial exposure from the Cadillac tax. Are plans close to hitting the tax?
Understand the demographics of the workforce and its claims history. Look at the premiums, the overall cost of the plan currently and cost increases over the past five years. Is a plan averaging a single-digit increase or a double-digit, and what is the figure ― 3%, 8%, 15%? (Plan-cost increases have averaged 6% to 9% annually.) Also review whether an increase may have been manipulated through plan design changes. Was the employer changing copays, deductibles and so on to get what would have been a 9% increase down to 4%?
Understanding those types of dynamics is important to determine “true costs” and how healthy the population is. You may need to ensure your ability to change plans down the line, under the purchase agreement, which may call for a modification of the agreement language.
Any agreement to keep benefits the same should be viewed in light of the Cadillac tax. Don’t let this consideration slip through the cracks, lest you find yourself in an uncomfortable position after an agreement is signed.
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