As health care costs continue to rise, health spending accounts are gaining momentum as vital tools that help many Americans save money by using pretax dollars to pay for health-related expenses. Flexible spending accounts (FSAs) and health savings accounts (HSAs) are two of the most common such vehicles. These consumer-driven spending accounts are particularly useful in conjunction with high-deductible health plans, which are becoming more common among workplace benefits offerings.
As the use of these accounts increases, legislative changes are needed in order to make them effective and accessible to more Americans. Here are three regulatory updates currently on the table to encourage broader use of FSAs and HSAs among American employers and employees:
1. Repeal or amend the “Cadillac Tax”
The excise tax on high-cost employer-provided health plans (also known as the “Cadillac Tax”) was included in the Affordable Care Act to discourage employers from providing excessively rich health benefits at taxpayers’ expense. It places a 40% tax (paid by the employer) on the cost of health coverage that exceeds certain threshold amounts.
The Cadillac Tax has unintended consequences for HSAs and FSAs. In particular, the inclusion of individual employee contributions to these accounts in the calculation of the tax threshold creates a significant disincentive for employers to offer these benefits, for fear of triggering the excise tax.
An amendment to repeal the Cadillac Tax passed the Senate in July 2017, but the corresponding bill has yet to pass the House of Representatives. On Jan. 22, Congress passed and President Donald Trump signed into law a two-year delay on the Cadillac Tax as part of the federal funding bill to end a partial government shutdown. The tax remains delayed until 2022, but a two-year delay has little impact on the many employers who must make decisions about their benefits programs three to five years in advance. In order to maintain and expand the availability of FSA and HSA accounts for working families, Congress must repeal the Cadillac Tax entirely, or at the very least pass legislation to exempt individuals’ contributions to these accounts from the calculation of the tax threshold.