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Legislation would shield FSA, HSA contributions from ACA excise tax

Legislation would shield FSA, HSA contributions from ACA excise tax

Group health plans would be much less likely to trigger the health care reform law's so-called Cadillac tax on costly premiums under legislation introduced in the U.S. House of Representatives.

The measure, H.R. 4832, introduced last week by Rep. Charles Boustany, R-La., would exclude pretax contributions made to employees' flexible spending accounts and health savings accounts when calculating whether group health plan premiums exceed the excise tax trigger under the Affordable Care Act.

Under the health care reform law, a 40% excise tax is to be imposed on the portion of health care plan premiums that exceed $10,200 for single coverage and $27,500 for family coverage. It is to go into effect in 2020.

With the average FSA contribution of $1,500 per participant in 2016, according to Aon Hewitt, excluding those and HSA contributions for excise tax calculations would reduce the likelihood of the tax being triggered.

Employer groups welcomed the proposal.

“By exempting employee contributions to FSAs and HSAs, from the Cadillac tax, Boustany's legislation will encourage employers to continue to offer these accounts as options for their employees and for families to prepare for their health care financing needs,” Bill Sweetnam, legislative and technical director with the Employers Council on Flexible Compensation in Washington, said in an email.

“While we are working hard to ensure that the Cadillac tax never again sees the light of day, it is absolutely imperative that HSAs not be subject to the tax,” Gretchen Young, senior vice president of health policy at the ERISA Industry Committee in Washington, said in an email.

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