"The size of the tax burden is expected to be substantial as the Congressional Budget Office estimates the total liability for companies subject to the tax could be a cumulative $79 billion between 2018 and 2023," the firm said in a report.

The tax is defined as "a 40 percent tax on the value of all affected health care programs a participant elects that exceed certain dollar thresholds in 2018 and beyond."

The tax burden falls on the employer, not the employee; in some cases that may not be true, as some employers are contemplating charging it back to plan members.

In a survey of companies that explored preparations for the tax, here are some of TW's findings:

• 73 percent are "very or somewhat concerned they will trigger the tax;"
• 62 percent say it will have a "moderate or greater impact on their health care strategy in 2015 and 2016;"
• 48 percent are likely to trigger the tax in 2018;
• that number could rise to 82 percent by 2023.

"Even with conservative projections, the impact of the excise tax on employers is substantial, yet it is often not fully understood," said Trevis Parson, chief health actuary for Towers Watson. "Each company will need to look at the tax carefully based on its own programs, and we expect a great deal of variation by industry."

Randall Abbott, a senior health strategist at Towers Watson, believes many employers are in the dark about how the tax works.

"For most employers, the excise tax will be a question of when, not if, unless action is taken. PPACA has put a timer on cost management for many employers and unless one cuts benefits or improves program performance there's a real risk of triggering it," he said.

Abbott listed three unknown factors about the tax that employers should learn more about:

• The excise tax is based on both employer and employee premium contributions, not just what the employer pays for coverage
• The definition of what's included for calculating the tax extends to tax-advantaged health care accounts such as flexible spending accounts, health reimbursement accounts and pretax contributions to a health savings account. The tax is not determined by the value of the medical plan but rather the value of all affected health benefits elected by an employee or family. Ultimately, the tax is determined by the aggregate value of the programs an employee elects, not just the medical plan value itself.
• Annual increases in the excise tax thresholds are not based on health care cost inflation, but instead on the Consumer Price Index, which was 1.5 percent for 2013 — far less than medical cost trend and considerably less than the 4 percent annual health care cost increase that the better performing employer health plans are expected to achieve in 2015 after plan changes.

"With so much at stake, it is critical that companies take a close and comprehensive look at their health programs and understand their projected costs going forward. It also highlights the need for companies to improve their health program performance to achieve or maintain a high-performance health plan," Abbott said. "The good news is that many have already taken steps and with proper plan management the impact of the tax can be significantly mitigated."

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