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FSA Friday - 5/18/18 - Recommended policy changes for tax-free healthcare accounts

Every FSA Friday, we discuss headlines that reinforce just how tax-free health spending accounts, like flexible spending accounts (FSAs) and health savings accounts (HSAs), are growing, helping Americans save money on health-related expenses. We also talk about how current legislation affects your accounts and your tax-free funds.

But we haven't seen many headlines focused on how policy changes can make these accounts better for both companies and their employees, so more Americans can take advantage of these savings. That's why this week's feature article from ThinkAdvisor is so newsworthy.

3 Policy Changes to Increase HSA Access - Anne Richter, ThinkAdvisor

In the article, author Anne Richter breaks down three regulatory updates currently under discussion. While we may not be very close to seeing them come to fruition, Richter makes a compelling argument for these changes, to encourage broader FSA and HSA use across the country.

Repealing the "Cadillac Tax"

The tax on high-cost employer-provided health plans (known as the "Cadillac Tax") was included in the Affordable Care Act to discourage employers from providing excessive health benefits at the taxpayers' expense. It places a 40% tax -- paid by the employer -- on the cost of health coverage that exceeds certain threshold amounts.

The Cadillac Tax has some negative consequences for HSAs and FSA holders. Having individual employee contributions factor into tax threshold calculation is a serious deterrent for employers to offer these benefits, who don't want to pay the 40% tax.

One more time, in English: the more money it costs to give employees these benefits, the less likely employers are to offer them. Repealing the Cadillac Tax would go a long way toward ensuring tax-free health spending remains on the table for workers.

Bottom Line: Your employers can only benefit from healthy, happy employees. And they probably want to offer you the best possible coverage. Repealing (or even adjusting) the Cadillac Tax will make it easier for these things to happen.

Expand how HSAs and FSAs can be used

According to a January 2017 Bankrate survey, 57% of Americans don't have enough cash to cover an unexpected $500 expense. To counter this, the Health Savings Act aims to make HSAs and FSAs more accessible by implementing policy changes around the use of these accounts, including (but not limited to):

  • Allowing spouses who are both 55 or older to make catch-up contributions to the same HSA
  • Increasing the limits on HSA contributions to match the sum of the annual deductible and out-of-pocket expenses permitted under a high-deductible health plan; and
  • Allowing HSA distributions to be used to purchase health insurance coverage.

Bottom Line: By expanding the HSA and FSA contribution limits, families can better manage their health costs, possibly decreasing the financial burden from both expected and unexpected expenses.

Enhance FSA limits

HSA-qualified health insurance may not be available to all Americans, making FSAs a more reasonable alternative. Because the entire annual FSA contribution amount is available to employees on the first day of the plan year, account holders have an immediate safety net against out-of-pocket healthcare expenses. This is a huge win for families with limited disposable income.

Bottom Line: If passed, the Responsible Additions and Increases to Sustain Employee Health Benefits Act of 2017 would make FSA benefits more accessible to American families by increasing the annual limit on employee salary reduction contributions to $5,000. This would give users much more flexibility -- and breathing room -- with their health needs each year.

FSA Friday is a weekly roundup of the latest topics, tips and headlines to keep you updated on all things flex spending. It appears every Friday, exclusively on the exclusively on the FSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram and Twitter.