Exempt Employee Contributions to HSAs and FSAs from the Excise Tax
The Excise Tax, created as part of the Affordable Care Act (ACA) and commonly referred to as the Cadillac Tax, is a tax on certain high-end health care plans. The purported purpose of this tax was to discourage employers from offering health insurance plans with excessively rich benefits. Unless repealed, the tax will be applied starting in 2018, and is equal to 40 percent of the value of any coverage in excess of $10,200 for an individual and $27,500 for a family.
Unfortunately, the scope and impact of the Cadillac Tax is much broader than many originally realized. In particular, the statute is being interpreted to require the contributions made by individuals into their own Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) to be deemed as if they were provided by the employer for the purposes of calculating the tax.
What this means is that unless the tax is modified or repealed, employee contributions to FSAs and HSAs would be hit by the tax and, consequently, these plans are at immediate risk. Statistics show that the structure of the tax will eventually result in penalizing employers offering ANY health coverage, and these penalties will likely be passed on to employees. Instead of having a tax that discourages overly generous health benefits, the tax will actually hit the majority of employer-sponsored health plans that average Americans receive.
Click here to read the full text of the Employers Council on Flexible Compensation (ECFC) advocacy paper. Read more studies showing the impact of the tax below.
Studies & Other Information
“How Many Employers Could be Affected by the Cadillac Tax?” (Kaiser)“2013 Employer-Sponsored Health Care: ACA’s Impact” (International Foundation of Employee Benefit Plans)“Preparing for the 2018 Excise Tax” (Mercer)“ACA Excise Tax: Cutting Family Budgets, Not Health Care Budgets” (American Health Policy Institute)“2014 Health Care Changes Ahead Survey” (Towers Watson)