Benefits Buzz

Health Care FSAs: 2016 Contribution Limit Prediction and Cadillac Tax Comments

Posted on August 31st, 2015

The statutory limit for Health Care Flexible Spending Account (FSA) elections is expected to remain unchanged in 2016. The salary reduction limit was capped at $2,500 in 2013 as a result of the Affordable Care Act (ACA) and is subject to inflationary adjustments. In 2015, the limit was increased to $2,550. However, due to a recent government report issued by the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) increased by just 0.2% from July 2014 to July 2015, which means it’s unlikely that an increase to FSA limits will occur next year. Per FSA rules, the limits can only be adjusted in $50 increments, and the low inflation rate over the last twelve months wouldn’t signal a $50 increase.  The inflation rate would need to be closer to 2% to trigger a $50 increase (1.96% to be exact). The Internal Revenue Service (IRS) will release the official limits for FSAs and other plans later this year, but we can suspect there will be no changes to FSA limits due to inflation statistics in the recent government report.
Also making media headlines as of late is the impact of the Cadillac Tax on FSAs. This is probably because Notice 2015-52 was recently released by the IRS. The IRS Notice is intended to be used in the process of developing regulatory guidance regarding the Cadillac Tax, and it re-confirms the IRS’ intent of including FSAs as part of the value of coverage when assessing the Cadillac Tax. Absent any changes or delays, both employer and employee contributions to FSAs are expected to count toward the thresholds which will trigger the excise tax. These thresholds are estimated to be $10,200 for single coverage and $27,500 for family coverage.  
As a result, some employers may be inclined to eliminate FSAs or cap salary reductions below the statutory limits making it more difficult and costly for employees to pay for out-of-pocket medical expenses. Notice 2015-52 is requesting public comments by October 1st, and we encourage you to submit your opinions to the IRS about the Cadillac Tax.  We firmly believe that FSAs are part of the solution and not part of the problem when it comes to solving the crisis of rising medical costs.  
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The materials contained within this communication are provided for informational purposes only and do not constitute legal or tax advice.


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