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Tuesday, May 26, 2015

Excise Tax Could Impede Americans’ Ability to Save for Healthcare Expenses

ABA's HSA Council and partner HSA Consulting Services, today released a study on the effect of the Affordable Care Act’s Excise Tax, also known as the Cadillac Tax, on HSA plans and contributions.

The analysis found that regulatory uncertainty is causing employers with plan costs close to the Excise Tax threshold to eliminate payroll contributions to HSAs in order to avoid incurring excise tax liability, even though many HSA-qualified plans will likely avoid the tax for years. As the HSA Council stated in its comment letter to the IRS last week, HSA plans have proven to be an effective way to increase health and wellness behaviors, while decreasing healthcare costs and enabling Americans to save for future healthcare and retirement expenses. In order to preserve these benefits for Americans, at a minimum employee contributions need to be excluded from the calculation of the excise tax.

The study shows that variance on premiums between states is very large. HSA plans in Connecticut are likely to be affected right away, where Iowa plans appear to be safe for years to come.

“Though our study shows that many HSA-qualified plans are expected to remain under the initial Cadillac Tax threshold, employers in expensive states or with expensive plans may incur tax liability right away, in 2018,” said Kevin McKechnie, executive director of ABA’s HSA Council. “The tax is calculated monthly, so employers who contribute large amounts in one month to help employees seed accounts may need to spread contributions over the course of a plan year in order to avoid the tax.”

To find how a 2015 family HSA plan may be affected, use the HSA Consulting Services’ HSA Cadillac Tax Calculator, which will enable you to enter your current HSA plan costs into a model to estimate when employees may begin triggering the tax. Data for the study came from industry leading sources for estimates of current premiums, distribution of current premium levels across the market, health premium growth rates, and inflation measures, projected into the future in expected and high premium growth scenarios.