By Jerry Geisel, Crain News Service
WASHINGTON (Aug. 21, 2015) — With inflation running low, the maximum contribution employees will be able to make to their flexible spending accounts (FSA) in 2016 is expected to remain unchanged, according to the latest government statistics.
The U.S. Bureau of Labor Statistics reported Aug. 19 that through the 12-month period ending in July, the consumer price index (CPI) rose just 0.2 percent.
Barring a big surge in inflation in August, the current $2,550 maximum is likely to remain in place next year, experts say.
The maximum FSA contribution limit and how that limit can increase are mandated by provisions in the 2010 healthcare reform law.
One Affordable Care Act (ACA) provision set a $2,500 annual limit on FSA contributions effective in 2013. Prior to that limit, employers typically allowed employees to contribute between $3,000 and $5,000 to their FSAs, said Rich Stover, a principal with Buck Consultants at Xerox in Secaucus, N.J.
Another provision specified that starting in 2014, the new limit would increase to match the rise in CPI at the close of a 12-month period ending on Aug. 31, with the increase rounded down to the nearest $50.
In the first 12-month period, ending in August 2013, the rise in CPI resulted in an indexed amount of $2,542, which, when rounded down to the nearest $50, resulted in no increase in the maximum FSA contribution limit in 2014.
Last year, inflation rose just enough to boost the limit to $2,550 for 2015. With the CPI barely rising since August 2014, it would take a big hike in inflation this month — unlikely given falling energy prices, for example — to boost the CPI enough to trigger a rise in the maximum FSA contribution limit for 2016, Mr. Stover said.
While FSAs are still a part of many employers' benefit programs, employee contribution and participation rates have been falling. According to benefit consultant Aon Hewitt, the average FSA contribution per participant fell to $1,342 in 2015, down from $1,405 in 2014, while 17 percent of employees working for employers offering FSAs made contributions in 2015, down from 20 percent the prior year.
Aon Hewitt says a likely reason for decreases are the increased popularity of consumer-driven healthcare plans (CDHPs) linked to HSAs or health reimbursement arrangements.
Last year, according to a Mercer L.L.C., survey, 23 percent of employees were enrolled in CDHPs, up from 18 percent in 2013, the biggest one-year increase since Mercer began to track CDHP enrollment about a decade ago.
The reasons for those increases are many. The maximum amount of salary employees can contribute to HSAs is much higher than for FSAs, while unused HSA contributions remaining at the end of a year can be rolled over for use in succeeding years. By contrast, unused FSAs must be forfeited by the March 15 of the following year. The IRS does allow — for employers who have adopted the provision — unused FSA contributions to be rolled over, but only up to $500.
Another factor that could further erode the prevalence of FSAs is a provision in the ACA that, starting in 2018, imposes a 40 percent excise tax on the portion of healthcare premiums exceeding $10,200 for single coverage and $27,500 for family coverage. The ACA counts FSA contributions towards that excise tax trigger, a key reason some employers will eliminate their FSAs, Mr. Stover said.
This report appeared on the website of Crain's Business Insurance magazine, a Chicago-based sister publication of Tire Business.