Benefit taxation: health care reform cure -- or more ills for
U.S. workers?
From the July 2009 issue of Ceridian Connection.
The rapid changes in health care reform funding proposals might very well be causing headaches and high blood pressure for anyone trying to track the shifts in momentum between employers, the health care industry, the U.S. Congress and the Obama administration. As the push to remedy the nation's ailing health care system moves rapidly forward, however, policy makers are considering health care reform changes that could dramatically affect your business and your employees' ability to manage their rising health care costs.
"Some of the proposals around health care reform legislation would not only shift a heavy tax burden to our nation's working families, but it also could limit employers' ability to use cafeteria and other pretax medical savings programs such as Health Care Flexible Spending Accounts, Health Savings Accounts and Health Reimbursement Arrangements," said Ann Shaw, senior vice president and associate general counsel for Ceridian. "These optional benefit plans allow employees to choose the best taxable and nontaxable benefits that suit their needs."
Tax-advantaged reimbursement accounts such as FSAs have long been integral, money-saving components in the provision of employer-provided health insurance for employees. Legislative changes are on the horizon, however, that could eliminate or significantly curtail these pretax health savings vehicles.
The Senate Finance Committee is considering legislation that would place a single dollar "cap" on the amount of employer-provided health insurance coverage that may be excluded from taxable compensation. In other words, all health costs below the cap would remain tax free to employees, while the value of health benefits above the cap would be reported on the employees' W-2s as taxable income. The proposed cap could include contributions to FSAs, which may adversely affect the cost-saving ability of FSAs or, worse, result in their elimination.
"Ceridian is speaking out in favor of Flexible Spending Accounts," Shaw said. "We are hosting Web forums to keep our clients updated, sending written communications to Congress and engaging in lobbying activity."
"We believe we must be actively engaged in the legislative process to ensure that our customers and their employees don't lose a valuable tool in managing their health care costs," said Bart Valdez, executive vice president and general manager of Ceridian Benefits Services. "Eliminating or restricting health care FSAs would dramatically affect the ability of working families to pay their out-of-pocket health care expenses."
Meanwhile, debate continues on how to implement health reform and how to pay for it.
"Indications right now are that the Senate Finance Committee legislation is evolving in the direction of a single cap that would be applicable to all employer-provided coverage -- premiums, dental, vision, FSAs, HRAs and HSAs," said Ceridian executive consultant Jim O'Connell, who has been in touch with senior democratic and republican staff of the U.S. Senate Finance Committee. "If that seems inevitable, employers will likely advocate for the highest possible dollar cap to make sure there is plenty of room under the cap for FSAs, HSAs and HRAs."
O'Connell said the text of the Senate Finance Committee bill should be released by July 15, but health care reform legislation will likely preoccupy Congress and the nation until Thanksgiving.
Taxing employee health benefits, even partly, would represent a dramatic change in a half-century of U.S. health and tax policies. Because President Obama opposed this during the presidential election campaign, it has been a difficult step for Congress to take. On the other hand, many feel there are few other sources of revenue to help pay for the $1 trillion 10-year cost of providing health coverage for all Americans.
The Obama administration has garnered recent concessions from both the pharmaceutical and hospital industries in the push toward health care reform. To indicate they are ready to be partners in some form of health care reform this year, hospitals and drug company associations have pledged nearly $300 billion toward the funding of reform efforts.
President Obama has called for urgent action to expand coverage to the nation's 47 million uninsured. In a 56-page report from the President's Council of Economic Advisers, White House chief economist Christina Romer pinpoints the following essential problems with the current health care system:
On the controversial issue of taxing health benefits, the Associated Press reports that the provision would generate hundreds of billions of dollars over the next decade. This money would help pay the $1 trillion or more the Obama administration has estimated is necessary under its plans to extend health care to the millions of Americans who lack health care coverage. Proposed changes to the current tax-free treatment of employer-provided health insurance coverage could eliminate the tax exclusion for medical reimbursement accounts, including FSAs.
The current tax treatment of health insurance is a by-product of wage and price controls imposed by the Roosevelt Administration during the World War II era. According to the Washington Post, employer-provided benefits that are not taxed as income constitutes one of the largest loopholes in the U.S. tax code. If the loophole had been eliminated, congressional tax analysts estimate that the Internal Revenue Service would have collected an extra $133 billion last year alone.
In a letter to the Senate Finance Committee, Ceridian Chairman and CEO Kathryn Marinello indicated that Ceridian shares the Committee leadership's view that a key component of successful health care reform is empowering individuals to share responsibility for health care and its costs with employers and government. However, Marinello emphasized that "FSAs, HRAs and HSAs do exactly that by helping millions of men, women and children afford ever-rising out-of-pocket medical costs."
A Kaiser/HRET study shows that 73 percent of employers with more than 200 employees offer an FSA plan, which can offer employees some relief from rising health care costs. Between 1999 and 2008, average health insurance premiums and worker contributions rose 119% percent, a much faster rate of increase than general inflation (17 percent) or workers' earnings (19 percent.)
Health care reform legislation is a moving target; it is not likely to be a quick fix. Ceridian strongly encourages the use of FSAs, HSAs and HRAs and will continue to monitor progress of evolving legislation while actively engaging in grassroots efforts to preserve tax-advantaged reimbursement accounts.
To see how FSA accounts save consumers money, visit Ceridian's Flexible Spending Account Calculator.
The rapid changes in health care reform funding proposals might very well be causing headaches and high blood pressure for anyone trying to track the shifts in momentum between employers, the health care industry, the U.S. Congress and the Obama administration. As the push to remedy the nation's ailing health care system moves rapidly forward, however, policy makers are considering health care reform changes that could dramatically affect your business and your employees' ability to manage their rising health care costs.
"Some of the proposals around health care reform legislation would not only shift a heavy tax burden to our nation's working families, but it also could limit employers' ability to use cafeteria and other pretax medical savings programs such as Health Care Flexible Spending Accounts, Health Savings Accounts and Health Reimbursement Arrangements," said Ann Shaw, senior vice president and associate general counsel for Ceridian. "These optional benefit plans allow employees to choose the best taxable and nontaxable benefits that suit their needs."
Tax-advantaged reimbursement accounts such as FSAs have long been integral, money-saving components in the provision of employer-provided health insurance for employees. Legislative changes are on the horizon, however, that could eliminate or significantly curtail these pretax health savings vehicles.
The Senate Finance Committee is considering legislation that would place a single dollar "cap" on the amount of employer-provided health insurance coverage that may be excluded from taxable compensation. In other words, all health costs below the cap would remain tax free to employees, while the value of health benefits above the cap would be reported on the employees' W-2s as taxable income. The proposed cap could include contributions to FSAs, which may adversely affect the cost-saving ability of FSAs or, worse, result in their elimination.
"Ceridian is speaking out in favor of Flexible Spending Accounts," Shaw said. "We are hosting Web forums to keep our clients updated, sending written communications to Congress and engaging in lobbying activity."
"We believe we must be actively engaged in the legislative process to ensure that our customers and their employees don't lose a valuable tool in managing their health care costs," said Bart Valdez, executive vice president and general manager of Ceridian Benefits Services. "Eliminating or restricting health care FSAs would dramatically affect the ability of working families to pay their out-of-pocket health care expenses."
Meanwhile, debate continues on how to implement health reform and how to pay for it.
"Indications right now are that the Senate Finance Committee legislation is evolving in the direction of a single cap that would be applicable to all employer-provided coverage -- premiums, dental, vision, FSAs, HRAs and HSAs," said Ceridian executive consultant Jim O'Connell, who has been in touch with senior democratic and republican staff of the U.S. Senate Finance Committee. "If that seems inevitable, employers will likely advocate for the highest possible dollar cap to make sure there is plenty of room under the cap for FSAs, HSAs and HRAs."
O'Connell said the text of the Senate Finance Committee bill should be released by July 15, but health care reform legislation will likely preoccupy Congress and the nation until Thanksgiving.
Taxing employee health benefits, even partly, would represent a dramatic change in a half-century of U.S. health and tax policies. Because President Obama opposed this during the presidential election campaign, it has been a difficult step for Congress to take. On the other hand, many feel there are few other sources of revenue to help pay for the $1 trillion 10-year cost of providing health coverage for all Americans.
The Obama administration has garnered recent concessions from both the pharmaceutical and hospital industries in the push toward health care reform. To indicate they are ready to be partners in some form of health care reform this year, hospitals and drug company associations have pledged nearly $300 billion toward the funding of reform efforts.
President Obama has called for urgent action to expand coverage to the nation's 47 million uninsured. In a 56-page report from the President's Council of Economic Advisers, White House chief economist Christina Romer pinpoints the following essential problems with the current health care system:
- Workers' wages are stagnating while a rising portion of compensation is going to health insurance.
- Small-business coverage is becoming increasingly unaffordable.
- The United States spends one-third more on health care per person than most nations in Europe, yet it has lower life expectancy and higher infant mortality.
- Health care providers' "fee for service" gives them an incentive to increase volume of care with little regard for its quality, price or effectiveness.
- Patients have little incentive to shop for care and need more information to help make informed choices.
- The health care industry is among the most inefficient in the nation with outdated information technology and quality measurements.
On the controversial issue of taxing health benefits, the Associated Press reports that the provision would generate hundreds of billions of dollars over the next decade. This money would help pay the $1 trillion or more the Obama administration has estimated is necessary under its plans to extend health care to the millions of Americans who lack health care coverage. Proposed changes to the current tax-free treatment of employer-provided health insurance coverage could eliminate the tax exclusion for medical reimbursement accounts, including FSAs.
The current tax treatment of health insurance is a by-product of wage and price controls imposed by the Roosevelt Administration during the World War II era. According to the Washington Post, employer-provided benefits that are not taxed as income constitutes one of the largest loopholes in the U.S. tax code. If the loophole had been eliminated, congressional tax analysts estimate that the Internal Revenue Service would have collected an extra $133 billion last year alone.
In a letter to the Senate Finance Committee, Ceridian Chairman and CEO Kathryn Marinello indicated that Ceridian shares the Committee leadership's view that a key component of successful health care reform is empowering individuals to share responsibility for health care and its costs with employers and government. However, Marinello emphasized that "FSAs, HRAs and HSAs do exactly that by helping millions of men, women and children afford ever-rising out-of-pocket medical costs."
A Kaiser/HRET study shows that 73 percent of employers with more than 200 employees offer an FSA plan, which can offer employees some relief from rising health care costs. Between 1999 and 2008, average health insurance premiums and worker contributions rose 119% percent, a much faster rate of increase than general inflation (17 percent) or workers' earnings (19 percent.)
Health care reform legislation is a moving target; it is not likely to be a quick fix. Ceridian strongly encourages the use of FSAs, HSAs and HRAs and will continue to monitor progress of evolving legislation while actively engaging in grassroots efforts to preserve tax-advantaged reimbursement accounts.
To see how FSA accounts save consumers money, visit Ceridian's Flexible Spending Account Calculator.
| Health care cost inflation: Appearances can be deceiving Several sources, including professional services firm PriceWaterhouseCoopers and health care actuarial firm Milliman, have reported health care cost increases ranging from 7.4 to 9.2 percent in 2009. These costs are down from 2008 figures and confirm the third straight year of declines in health care inflation. However, while the percentage growth may be the smallest in three years, the total dollar increase for a family of four -- at $1,162 according to Milliman -- is the largest in that same period due to the cumulative effects of annual health care cost increases. Year after year, the cost being measured against grows, even if the percentage increases do not. Health care inflation is lower in 2009, but the total year-to-year increase is about the same. Next year, even if inflation continues to slow, the total cost will increase. According to Milliman's data, employer costs in 2009 will increase by 5.4 percent. Employees will see nearly a 15 percent increase in the amount of money that comes out of their paycheck to pay for health care. Add to that another 5.4 percent increase in the amount employees pay out-of-pocket for other health care expenses. With the cost of health care expenses continuing to soar, it is more important than ever for employees to practice preventive health care, be wise consumers of health care and tap the money-saving resources available to them through tax-advantaged reimbursement plans. |
