Onsite Clinics Appealing, Despite Cadillac Tax Uncertainties

Despite the regulatory uncertainty about how the Affordable Care Act’s excise tax will apply to employer-sponsored care offered through onsite clinics, employers appear committed to the concept.

Last February, the IRS released a notice suggesting the cost of care received through onsite clinics must be counted in the ACA’s excise tax, also known as the Cadillac tax, calculations.

“We have concerns that that [IRS notice] is not in alignment with what employers are trying to achieve with [onsite] health centers and [with employers] managing the health of their populations positively,” says David Keyt, principal, national onsite clinic center of excellence leader with Mercer.

While 15% of employers responding to a Mercer survey believe their general medical clinic will hurt them in terms of the excise tax calculation, nearly as many (11%) believe it will help and 28% believe it won’t have an effect either way. Forty-six percent, however, say they don’t know how the clinic will affect their Cadillac tax calculations.

In research from the National Association of Worksite Health Centers earlier this year, conducted prior to the IRS notice, over a third of employers with onsite clinics said they do not consider the clinics as part of their benefits plan.

“The challenge under the excise tax is, from our perspective, convincing the IRS that these are medical settings. They’re not benefit programs per se,” says Larry Boress, president and CEO of the Midwest Business Group on Health. “[The federal government is] not going to be taxing physician offices. They’re not taxing hospital or urgent care settings, or retail clinics, and these onsite centers provide very much the same kind of services.”

Moreover, he continues, employers should not be penalized for expanding access to primary care, arguably one of the primary goals of the ACA. If anything, they should be offered a tax credit, he believes. “We find anywhere from 40% to 60% of people who go to onsite clinics don’t have a doctor at all and so [clinics are] tremendously improving access” not only in rural communities but in metropolitan areas as well, he says.

In a comment letter earlier this year, the MBGH urged the IRS to exclude services provided at onsite and near-site clinics from the definition of “applicable coverage” under the Cadillac tax.

“The IRS has indicated that it will exclude onsite medical clinics providing de minimis coverage — while excluding all onsite medical coverage would require a statutory change, the agency should implement as broad a definition of de minimis as possible, given that onsite medical clinics providing first aid, immunizations, and other forms of routine, non-intensive care are lowering, rather than driving, unnecessary utilization,” says the letter. “MBGH would recommend all onsite or near site clinics be excluded. If this is not possible, a broad definition of de minimis is key.”

Last year, Mercer’s National Survey of Employer-Sponsored Health Plans found that 29% of employers with 5,000 or more employees provided an onsite or near-site clinic offering primary care services, up from 24% in the prior year. In a follow-up survey on worksite clinics specifically, 72% of the 134 employer-respondents whose clinics provide general medical services said that managing employee health risk and chronic conditions is an important objective for the clinic.

Measuring return-on-investment of onsite clinics remains a challenge for employers, according to the Mercer survey, with 41% of employers saying they are able to provide ROI data.

But “for many employers, employee satisfaction is a more important measure of success than ROI,” says Keyt. Survey respondents report that 45% of employees, on average, used the clinic in 2014.

For employers contemplating an onsite clinic, or partnering with another employer for a near-site clinic, Keyt recommends due diligence. “Completing a comprehensive feasibility study and identifying what specific pain points the health center is going to be designed to address and doing research at the site level to understand what barriers might exist to employees or dependents or other groups [is important],” he says, adding that these steps will set the foundation for a clinic design that meets the needs of the organization, “versus what a vendor might prescribe for them, which might be driven by economic interests.”

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