What Engagement in Washington Means for Consumer-Directed Benefits

October 4, 2018

Healthcare has always been top of mind for most Americans. We want healthcare that’s affordable, comprehensive and accessible. Healthcare continues to be a highly debated topic on Capitol Hill, and legislation in Washington can have a profound impact on you and your participants. More than 160 million Americans save through consumer-directed benefits.

That’s why we serve as engaged advocates in the healthcare landscape. We’re proud to be an active member of the Employers Council on Flexible Compensation (ECFC), which schedules a handful of events for members each year in Washington to promote consumer-directed benefits improvements. We joined other ECFC members at an event in Washington last week. Let’s look at some of the causes that the ECFC aims to affect legislation and how those changes would benefit you.

Pre-tax benefits advocacy

Expanding plan eligibility

Consumer-directed benefit plans, such as Health Savings Accounts (HSA), Flexible Spending Accounts (FSA) and Health Reimbursement Arrangements (HRA), have their own eligibility requirements for participants, their spouses and  dependents.

One of ECFC’s primary objectives is to expand plan eligibility so more Americans have access to pre-tax benefits. For example, the ECFC promotes allowing individuals on Medicare Part A to continue to contribute to an HSA. Currently, those on Medicare Part A can use their HSA funds but are not eligible to contribute to an HSA.

“We’re always looking for ways to make it easier for participants to save money on their healthcare costs,” said Discovery Benefits Chief Compliance Officer and Executive Vice President Suzanne Rehr, who is on the board of directors for ECFC.

Repeal or adjust Cadillac tax

The Affordable Care Act (ACA) was enacted in 2010 and includes the Cadillac tax, which is an excise tax that is scheduled to go into effect in 2022. According to the Tax Policy Center, the Cadillac tax:

  • Applies to employer and employee contributions to health insurance premiums, HSAs, FSAs and HRAs.
  • Puts a tax of 40 percent of the value of health benefits exceeding thresholds projected to be $10,200 for single coverage and $27,500 for family coverage in 2022.

A 2014 survey estimated that the Cadillac tax would cost large employers (10,000-plus employees) an additional $4,800 to $5,900 per employee over 10 years. And that cost could lead to employees paying more for health plans or employers paring down what they offer.

The Cadillac tax’s effective date has been delayed before. However, ECFC seeks to have the excise tax fully repealed.

“If a full repeal is not possible, we would like to have individual contributions to HSAs and FSAs excluded from the Cadillac tax,” Rehr said.

Enhance Medical FSA flexibility and limits

Medical FSAs have long been subject to the IRS’ use-or-lose rule, which states that funds not spent by participants within the plan year are forfeited to the plan. To offset this, the IRS allows employers to include a carryover with their FSA, which lets participants carry over up to $500 into the next plan year. However, only about half of all employers’ plans offer a carryover.

ECFC hopes to expand the carryover potential and contribution limits for FSAs, so participants can carry over up to three times the amount of the annual cap on FSA contributions.

ECFC also would like Congress to develop legislation that would allow participants to contribute up to $5,000 into a Medical FSA. The 2018 Medical FSA contribution limit is $2,650.

“We encourage positive legislative changes that will help promote the use of consumer-directed benefits and will make it easier for individuals to both access their funds and use the benefits provided by these accounts,” Rehr said.

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