Up to one-fourth of health plans will be hit by the Affordable Care Act’s so-called Cadillac Tax, according to a study by the Kaiser Family Foundation. And because FSAs will be included in calculating liability under the tax, the study suggests that many employers will eliminate them.
But Alston & Bird’s John Hickman, a partner in the Employee Benefits & Executive Compensation Group, disagrees, saying that employers will look for less drastic solutions to remain below the excise tax’s threshold, such as
increasing employee out-of-pocket costs, putting more of an emphasis on wellness and reducing or changing spousal benefits.
And if those don’t work, employers “will monitor and reduce” FSA elections as needed, said Hickman. Employers can change their FSAs from “general purpose” to dental and vision only FSAs.
“Offering FSAs under this latter approach will cause the FSA to have no adverse impact on the excise tax,” Hickman said.