Flexible Benefit Plans Negatively Impact Medicare's Hospital Insurance Program

This final report estimates that flexible benefit plans (salary reduction agreements whereby an employee elects a reduced salary so that payment can be taken in the form of nontaxable fringe benefits) will cost the Medicare trust fund revenues of about $2.1 billion over the next 5 years. While revenue declines, future expenditures will not decline since participants in flexible benefit plans lower their liability for Medicare taxes, but remain entitled to receive the full range of Medicare benefits. We recommended that flexible benefit plans be included in the health insurance portion of the Federal Insurance Contributions Act taxable wage base.