Part of the Patient Protection and Affordable Care Act is the capping of health care flexible spending accounts at $2,500 beginning in 2013. What lawmakers are not seeing is that this cap is going to occur at a time when employees need their flexible health care spending accounts more than ever to help fund their health insurance.
Because health care costs keep rising, more and more employers are implementing in-network deductible plans and pushing more costs to employees. Employers who don't want to jump to high deductible health plans, such as the health spending account model, but want more in-network cost sharing than just co-pays, are implementing lower in-network deductibles and coinsurance plan designs.
Most employers implementing this type of plan have an in-network deductible of $300 to $1,000 for employee-only coverage. Family deductibles are even higher - two or three times what the employee-only deductible is.
After the deductible is met, most plans have an in-network coinsurance. This means the employee is left paying a percentage of the costs until they hit an out-of-pocket maximum. Once they hit an out-of-pocket maximum, the employee pays nothing more for the rest of the year. But most out-of-pocket maximums are a few thousand dollars - leaving the employee with a substantial out-of-pocket expense for their health care costs.
Enter the flexible spending account
This is where the flexible spending account comes in. The flexible spending account helps alleviate the employee's out-of-pocket costs by allowing them to set aside pretax funds to pay for their health care costs, such as deductibles and coinsurance.
The flexible spending account allows the employee to have deductions taken out of their paycheck pre-tax throughout the year. Paying the costs via a flexible spending account helps to spread out the costs and allows tax savings. Employees are able to have small amounts deducted from their paycheck throughout the year rather than have to come up with a few thousand dollars all at once.
Employees will take on more costs
Currently, each employer is able to set their own flexible spending account limit. Some employers have limits as high as $8,000 - though most are around $5,000. Starting in 2013, however, every employer will have their flexible spending account limit capped at $2,500.
And between now and 2013, in-network cost sharing with deductibles and coinsurance is sure to only increase. The flexible spending account cap, coupled with the increase in cost sharing, is going to leave employees taking on more costs than ever - with much less tax advantage.
At a time when employees are being asked to shoulder more of their health care costs, should the flexible spending account be capped at such a low amount? If the cap were $5,000, I don't think we would be having this discussion, but a $2,500 cap is only half of what most employers allow.
The rise in employee health care costs, coupled with the flexible spending account limit of $2,500, means employees will spend more of their take-home pay on health care than ever before. It does not seem that now is the time to do this to employees - we can only hope Congress reconsiders this provision.
Contributing Editor Christy Yaccarino, GBA, EHBA, HIPAAA, is a benefits manager for Ambrose Employer Group in New York City. She can be reached at firstname.lastname@example.org.
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