The Employers Council on Flexible Compensation is calling for the repeal of the Affordable Care Act’s 40% excise tax and, at the very least, working for a fix to the loophole that includes individual contributions to HSAs and FSAs from the tax’s calculation.
Qualified contributions to flex spending plans are intended to be a pretax savings for insured workers, who often are incentivized to contribute to them with matching funds from their employers. Yet as the ACA is written, it’s possible that those contributions could trigger the threshold that puts an employer in Cadillac-tax territory.
The ACA’s excise tax places a 40% levy on high-cost employer-sponsored health plans ($10,200 for individuals, $27,000 for families). Originally set to go into effect in 2018, it recently was pushed back until 2020 and some say may be repealed altogether by Congress.
Estimates vary on exactly how widespread a risk that is (a 2015 report from the American Bankers’ Association couched it at 25%; the Kaiser Family Foundation estimates that number could climb to 42% by 2028). From the perspective of ECFC, which represents myriad rubber-meets-the-road interests at the intersection of healthcare and tax policy, the law threatens a product that was intended to provide tax relief to policyholders.
“Our concern is that employers are determined that they’re going to take some actions to avoid paying the excise tax,” says ECFC Executive Director Martin Trussell. “We know, from some surveys that have been done, that large employers have either eliminated or curtailed those [HSA] offerings. At the same time that employers are looking to control their premiums, they’re going to increase deductibles. Those higher deductibles are exactly what these consumer-driven design based health plans were designed to [address].”
Quote“Our concern is that employers are determined that they’re going to take some actions to avoid paying the excise tax."
Last month, ECFC visited 80 different offices on Capitol Hill to take up the cause directly with elected officials. Reactions were uniformly positive, according to Trussell, who admits that the clause is “kind of arcane” and “not something most of the country will pick up their newspaper and see on the cover.” Nonetheless, millions of flexible health account participants are affected by the ACA, and as Trussell points out, there’s been turnover in Congress since the law was passed.
“Fifty-four percent of the current house of representatives weren’t in office [then],” Trussell says. “Most everyone we talked to gets it. The one thing we do get consistently is a thank-you for bringing a solution.”
The legislative solution around which ECFC is rallying was proposed by Senator John Thune (R, South Dakota) in S-2698. Trussell described the language in the Thune amendment as “something that both sides of the aisle can gravitate around.” It exempts contributions to Archer MSA’s, health savings accounts, health flexible spending arrangements, and other “salary reduction contributions” from the excise tax. He’s hopeful that changes can be made, but has been advised to temper those expectations in an election year.
“We’re holding out hope that maybe the language will get attached to something before the end of the year,” Trussell says. “Everyone who’s been involved in this process is encouraged right now.”
Most of all, Trussell says, a legislative solution is necessary to help protect “one of the largest tax breaks” in employer-sponsored healthcare. Without it, he forecasts that the cost of higher premiums will fall squarely on the shoulders of employees—a circumstance HSA’s were created to avoid.
“A little over 65% of employers have been migrating employees to the more traditional PPO-type plans with a lower deductible and much higher premiums because you have much more first-dollar coverage,” Trussell says. “When you add that to the high-deductible plan, you’re going to be taking more money out of employees’ paychecks for the premium-sharing.”
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