The Kaiser Family Foundation (KFF) recently released an Issue Brief on the percentage of employers affected by the Cadillac Tax. Notably, their research estimates 19% of employer’s have a least one plan with a Flexible Spending Account (FSA) that already exceeds the 2018 thresholds. The percentage is expected to increase to 26% by 2018 and 42% by 2028. The authors speculate that, eventually, the percentage of employers with at least one affected plan could grow to 100% if premiums continue to outpace the rate of inflation.
Not surprisingly, employers are making changes now in the hope that phasing-in changes over a couple of years will be less disruptive to employees. One key change being considered is limiting the use of FSAs. In general, employees can contribute up to $2,550 (for 2015) into an FSA, which would count toward the cost of coverage subject to the Cadillac Tax. However, since employees may elect to contribute different amounts, it is possible that the cost of coverage for some employees would exceed the threshold but wouldn’t for other employees.
To avoid the tax and the administrative headaches involved with figuring out which employees are or are not triggering the tax, many employers are considering limiting or eliminating FSAs rather than drastically changing their benefit plans. So, as we march on towards 2018, it may very well be that the days of FSAs are numbered.