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Patricelli: Baucus Health Bill Bad For FSAs

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WASHINGTON BUREAU — Benefit plan administrators say trying to raise tax revenue by imposing caps on flexible spending account contributions and health benefits deductibility could shut down the FSA program within 10 years.

The administrators are trying to draw attention to a provision in the Senate Finance Committee’s health bill proposal — the America’s Healthy Future Act draft — that would limit annual FSA contributions to $2,500. The cap would not be indexed for inflation.

Benefit plan administrators also are talking about possible unintended side effects of a provision in the AHFA draft that would impose a 40% excise tax on so-called “Cadillac” health plans.

The AHFA bill draft was developed by Senate Finance Committee staffers under the direction of Senate Finance Committee Chairman Max Baucus, D-Mont. The staffers included a number of new fees and taxes in an effort to pay for new health benefits programs and subsidies, to keep the bill from increasing the federal budget deficit.

The Cadillac plan tax provision would cap the deductibility of employer-sponsored health benefits. In 2013, the limit would be $8,000 for individuals and $21,000 for families. Calculations of the value of an employee’s benefits package would include both employer and employee contributions for the employee’s basic medical coverage, along with the value of any dental coverage, vision coverage or FSA.

The Employers Council on Flexible Compensation, Washington, an industry trade group, is launching an educational campaign to raise awareness of the provisions, according to Robert Patricelli, chairman of Evolution Benefits Inc., Avon, Conn.

“This is all in the name of raising $14 billion, and it is not good policy,” Patricelli says.

The cap on FSAs would have the effect of raising taxes on middle-income people who are already sick, Patricelli says.

“The people who contribute the most to FSAs are the ones who believe they need it the most, either because they have a very large family, or a chronic illness, or something like that,” Patricelli says. “That can’t be good policy, cutting your ability to get a tax exclusion.”

Patricelli says the Cadillac plan tax also could also have a broader effect than policymakers realize.

The $21,000 deductibility cap for family benefits “looks like a lot, but in the Northeast, for example, the average family health plan contribution is $14,000, when you combine both the employer and employee contributions,” he says.

By 2013, Patricelli says, 8% annual inflation could push the average up to $17,600.

“And if you put $2,000 on top of that for dental and vision insurance, then someone who has an FSA is going to break through a cap, triggering an excise tax,” he says.

By 2013 or 2014, “lots of plans would be breaking through the cap, unless employers cut benefits substantially,” Patricelli says. “We think that the first thing they will cut is the FSA.”

Moreover, inflation could reduce the value of the $2,500 cap on FSA contributions over time, and that means failing to index the FSA cap also could shut down FSA plans, Patricelli says.


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