Laws and Legislation

FSA Friday with Sean - 1/26/18 - How the Cadillac Tax affects your healthcare

While this week's news centered around the government shutdown, the deal that ended it had an unexpected wrinkle that will affect consumer healthcare for the foreseeable future.

On Monday, President Trump signed a bill to fund the government for another three weeks. In this bill was a provision to delay the effective date of a targeted tax on high-cost, employer-sponsored health plans (the "Cadillac Tax") until 2022.

What's a "Cadillac" Tax?

Let's back up a bit. The Cadillac Tax was an attempt by the Affordable Care Act (ACA) to solve a tax subsidy issue that dates back to World War II called Employer Sponsored Insurance (ESI). The point of the Cadillac Tax was to address the impact of ESI, raise additional revenue to fund the Affordable Care Act, and encourage employers to go for more cost-effective healthcare options.

According to Forbes, ESI is a tax subsidy that was a result of wage freezes that took place during WWII, and ESI was a means for employers to use tax-free funds to cover the cost of generous health plans. However, as wages grew and ESI remained in place, this created long-term issues for the American healthcare system.

First, ESI only benefits those enrolled in employer-sponsored healthcare coverage, which accounts for about half of all Americans.

Furthermore, the ESI makes it cost-effective for employers to move more money into healthcare benefits rather than wage increases. In terms of compensation, it became cheaper for employers to provide additional healthcare benefits, as opposed to more pay.

So, the Cadillac Tax was created as a deterrent for employers who offer high-cost health plans, with the idea that more money would be available to cover uninsured individuals. This would make the most expensive plans - which some argued would lead to overuse/abuse of medical care benefits - to be less desirable to employers.

The ACA proposed an additional tax on high-cost health plans -- the "Cadillacs" of their industry. This tax adds 40% additional tax on the value of health insurance coverage they offer. This is determined by these thresholds: $10,200 for individual plans and $27,500 for families. In other words, this is the total cost of the healthcare plans, including vision and dental benefits.

The tax, which applies to health plans including FSAs, HSAs and HRAs, was originally set to begin in 2018 and had been delayed until 2022.

Why is the Cadillac Tax delayed?

While the Cadillac Tax seemed like a good idea on paper, Congress failed to implement the tax several times since the ACA passed. The main issue is that this tax is tied to general inflation -- which simply refers to the price of goods and services in an economy over time -- as opposed to medical inflation, which is roughly 2-3x lower.

Healthcare spending typically outpaces general inflation, so this could inevitably lead to a larger amount of healthcare plans being subject to the Cadillac Tax. Because of this, employers are already faced with tough decisions about whether to continue to provide the same standard of healthcare coverage, according to the Society for Human Resource Management.

Modern Healthcare reports that US employers have begun to implement healthcare changes if the Cadillac Tax ever goes into effect. A shift to high-deductible health plans (HDHPs) has been a leading trend with about 24% of workers in employer plans enrolled in a high-deductible option.

HDHPs are the only types of plans that are offer a health savings account (HSA) option, which could be contributing factor to their explosive growth. HSA enrollment has surged in 2017 to 21 million total accounts, a 16% increase year-over-year, according to research firm Devenir.

The Cadillac Tax has been a major sticking point in the world of consumer healthcare for years, and while it could see legislative changes in the future, this debate will most likely have to wait until its new implementation date in 2022.

If you're interested in diving deeper into this topic, you can read the full text of the bill to get a better idea of what it entails.

And of course, for the latest info about your health and financial wellness, be sure to follow our Learning Center, Facebook, Instagram and Twitter pages.

Open Enrollment

WATCH: How Open Enrollment Works


Find out why open enrollment is one of the most important dates on any working professional's calendar. Whether yours is weeks or months away, it's never too early to start planning your future health coverage options. To help streamline learning about your options, check out this helpful video from our friends at The SEBO Group:

We hope you find the answers you're looking for, and feel free to check out the rest of our resources on our Open Enrollment page.

Still have Open Enrollment Questions?

Tips for a stress-free open enrollment

By Jeremy Miller, Founder and President, FSAstore.com

Open enrollment can be a stressful time for both employees and benefits professionals. With an abundance of information to digest about available health plan options, spending accounts, and supplemental benefits, employees are often overwhelmed and confused because they lack the knowledge and understanding of the available options. Spending accounts continue to garner significant interest and questions from employees during open enrollment. And for good reason: with these tax-advantaged accounts, which includes flexible spending accounts (FSAs) and health savings accounts (HSAs), employees can save big when they make contributions and use the funds for qualified expenses.

Read more

FSA Store headed to SHRM

It's almost that time of the year again: the SHRM 2014 Annual conference is approaching! Our team is attending and exhibiting at theSociety for Human Resource Management (SHRM)2014 Annual Conference & Exhibition later this month in Orlando!SHRM is the world's largest professional association of human resource (HR) professionals. You'll be able to find us at booth#233.

Curious to know more about FSA Store?

We're the only site dedicated to Flexible Spending Accounts (FSA). Our site exclusively focuses on FSA eligible products to eliminate the confusion that consumers often face at the drugstore, when they cannot easily tell which products are covered. However, participants with an HSA or HRA can find a wide selection of medical products on our site as well. It's best to check in with a plan administrator to ensure products are eligible with an individual plan.

Help for Human Resources Professionals

Are you in HR? Want to learn more about how FSA Store can help your employees? We offer many resources for people to learn about their FSA ranging from a Learning Center to an Eligibility List to an FSA Calculator and thousands of products available with an FSA.

If you're going, comment below or visit our booth! Feel free to check in with our team for more details, and be sure to follow our SHRM experience via Twitter at@FSAStoreor onFacebook.