Health Plan Taxes, Cap on FSAs Under Discussion in Health Care Reform Plan

Commercial health insurance companies and administrators of self-funded health care plans would have to pay an excise tax of 35 percent on health care plans whose costs exceed a certain level under a draft health care reform proposal by Senate Finance Committee Chairman Max Baucus, D-Montana.

Under the proposal that Sen. Baucus described Monday, September 7, as a “framework” for discussion and not a final product, the 35 percent excise tax would apply to health care premiums that exceed $8,000 for individual coverage and $21,000 for family coverage.

In addition, the proposal would place a $2,000 annual cap on money that could be contributed to flexible spending accounts. There is no legal cap today and many employers allow employees to make up to $5,000 a year in pretax contributions to their health care FSAs.

The proposal also would tax the value of a federal subsidy now provided to employers whose retiree prescription drug plans are actuarially equal to the Medicare Part D benefit, as well as increase to 20 percent from 10 percent the tax on health savings account withdrawals prior to age 65 that are not used for reimbursement of medical expenses.

Revenue generated from the proposals would be used to help fund federal health insurance premium subsidies of the low-income uninsured.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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