Dependent Care FSA Increases and Rising Health Insurance Costs

As premiums continue to climb, new contribution limits are also rolling out. It’s important for both employers and employees to stay informed about what these changes mean.

A Long-Awaited Increase for Dependent Care Assistance Plans

Beginning January 1, 2026, the maximum pre-tax contribution to a Dependent Care Flexible Spending Account (FSA) will finally increase. The new limits will be:

• $7,500 for single filers and married couples filing jointly
• $3,750 for married individuals filing separately

This is a significant jump from the current limits of $5,000/$2,500, which have not been updated in years. However, unlike Health Savings Accounts (HSAs), this increase is not indexed for inflation, meaning it will stay fixed unless Congress acts again.

What Employers Should Do

• Update plan documents and communications to reflect the new limits.
• Review nondiscrimination testing implications, particularly the 55% average benefits test.
• Communicate during open enrollment so employees can maximize savings.
• Consider non-calendar year plans, which may require special handling to prorate limits for 2026.

What Employees Should Know

• More pre-tax savings: Families can set aside more to offset dependent care expenses, reducing taxable income.
• Compare alternatives: Some may benefit more from the Child and Dependent Care Tax Credit (CDCTC), but expenses cannot be double counted.
• Support for rising childcare costs: The increased limits better align with the reality of today’s dependent care expenses.

Health Insurance Premiums on the Rise in 2026

While the FSA news is positive, employees and employers alike will face steep health insurance premium increases in 2026.

ACA Marketplace Plans

• Premium hikes: Insurers have requested a median 18% increase in premiums, the highest in nearly a decade.
• Reduced subsidy: Enhanced ACA subsidies are scheduled to expire at the end of 2025. As a result, premiums for many could spike by 75%.
• Higher out-of-pocket maximums: Self-only coverage will rise from $9,200 to $10,600; family coverage will increase from $18,400 to $21,200.
• Fewer choices: Some insurers, like Aetna, are exiting the marketplace in 2026.

Employer-Sponsored Plans

• Projected cost increase: Consulting firms estimate a 9% to 9.5% rise in health benefit costs per employee, the sharpest increase in at least 15 years.
• Employee impact: Expect higher premiums, deductibles, and cost-sharing measures as employers balance budgets.

Why Costs Are Rising

1. Expiration of ACA subsidies creating uncertainty and instability in the market.
2. Medical inflation and labor costs driving up provider expenses.
3. High-cost drugs, including GLP-1 weight-loss medications, pushing up pharmacy spending.
4. Provider consolidation, allowing hospitals and systems to negotiate higher rates.
5. Tariff concerns, with some insurers adding extra increases to hedge against future medical supply costs.

What This Means for Employers and Employees

• Employers: Proactively update plan documents, prepare for higher health benefit costs, and clearly communicate changes during open enrollment.
• Employees: Budget for higher premiums and out-of-pocket costs and compare coverage options carefully. For those on ACA marketplace plans, check subsidy eligibility early to avoid losing affordable coverage.

The year 2026 will bring both opportunity and challenge. On the one hand, the long-awaited increase in Dependent Care FSA contribution limits provides families with meaningful, tax-advantaged way to pay for childcare. On the other hand, rapidly rising health insurance costs and the expiration of ACA credits will put pressure on household and employer budgets alike.

Taking the time now to plan, review options, and communicate effectively will help ensure a smoother transition into the new year.

👉 RMC Group can help you review your benefit plan strategy, evaluate cost-saving opportunities, and ensure your programs remain competitive and compliant as these changes take effect. Contact our office today at 239-298-8210 or schedule a review with our Health Insurance team here.