Limiting Flexible Spending Accounts Is Not Effective Health Care Reform

Posted October 29, 2009 at 5:00pm

Details of health care reform policies under consideration by Congress have been hotly debated in recent months by legislators in committee sessions, voters at town hall forums and media pundits. Proposals that would affect the use of flexible spending accounts, however, unfortunately have received relatively little attention during this process.[IMGCAP(1)] A flexible spending account is a tax-advantaged account for use in paying for qualifying medical expenses. Many employers throughout the United States offer FSAs to employees, who use the pre-tax funds that they set aside to pay for health-related expenses not covered by their medical or dental insurance programs.Currently there is no limit to the amount that an employee can defer into an FSA each year, but most employers cap FSAs at $5,000 for their employees. Under the health care reform bill that recently passed in the Senate Finance Committee, FSAs would be capped at $2,500 per year.The $2,500 cap would mean many people could not use FSA account funds to cover major health care expenses to the extent that is currently possible. FSA account funds are used to pay for items as diverse as medical office co-payments, wheelchairs, some diabetic supplies and hearing aids — reducing out-of-pocket costs because the FSA funds are not part of the account-holder’s taxable income. According to the Robert Wood Johnson Foundation, individuals and families battling chronic illnesses have an average of $4,398 per year in out-of-pocket expenses, even if they have health insurance.Oral health-related expenses also qualify for FSA payments. In cases where dental insurance plans do not cover all treatments, FSA funds may help cover the costs of root canals, crowns and bridges or orthodontic treatment. The American Association of Orthodontists recently surveyed its membership and found that of responding members, 65 percent indicated that many of their patients use FSAs to help fund their orthodontic treatment.Those who use FSA accounts are typically not wealthy individuals or families seeking shelter from taxes, as some FSA critics have charged. Business Wire reports the average FSA account-holder’s salary is about $55,000.An additional concern about the proposed $2,500 FSA contribution cap is that it is not indexed for inflation. If passed, it would remain at $2,500 unless updated by Congress in the future.The House of Representatives’ health care reform legislation has not thus far called for FSA caps, but one House proposal would prohibit the use of FSA funds to pay for over-the-counter medications. This change would mean, for example, that an allergy sufferer wishing to use FSA funds to cover nonprescription medication would be required to visit a doctor to get a prescription for a drug that could normally be purchased over the counter Forcing FSA account-holders to schedule otherwise unnecessary doctor visits hardly seems like an effective means of reducing health care expenses — a stated goal of health care reform.In the coming weeks, both chambers of Congress will work to combine features of House and Senate health care reform bills generated by committees in both chambers, in order to develop legislation likely to pass in each body.FSAs enjoy broad support on both sides of the aisle in Congress, but while an amendment was introduced to the Senate Finance Committee bill to address the cap issue, the amendment was not included in the final committee bill. It is not clear whether the FSA cap question will be revisited as consolidation of legislation moves forward.Health care reform must allow Americans more control over their personal health care decisions, reinforce opportunities for individuals to afford the medical choices they make and expand the universe of health care options available to all. FSAs meet all three of those goals, and Congress should preserve them in their current form.We urge Congress not to further erode the economic status of America’s middle-class families by limiting the FSA benefit and capping FSA contributions at $2,500 per year. FSAs encourage individual responsibility and allow consumers to take an active role in managing health-related expenses. They should be viewed not as part of the problem, but as part of the solution. Dr. Robert Bray is the president of the American Association of Orthodontists.