The health care bill proposed last week by the Senate Finance Committee would pare tax-free health expense accounts.
That's troublesome to workers such as Frank Mallak, who takes advantage of the flexible spending account (FSA) offered by his company. Every year for 11 years, Mallak, who lives with his wife, Jan, in Pittsburgh, has made the maximum contribution of pretax dollars to his FSA. He uses the funds to pay for his asthma, diabetes and arthritis prescription drugs, as well as chiropractor bills.
The legislation would limit FSA contributions to $2,000 a year beginning in 2013. And it would standardize the expenses that are qualified.
"The Finance Committee presumably decided that the revenue loss from FSAs is large in relation to the good it does," says Paul Ginsburg, president of the Center for Studying Health System Change.
"The Finance Committee needs to keep the cost of the health reform down, and the FSA seems less valuable than money that goes to expand the number of people who get health insurance coverage," he says.
Mallak's employer allows him to set aside $3,600 in the FSA a year, and even that is not enough, he says. "It's an important issue to me," Mallak says. "Usually in the fourth quarter, I've depleted all of my money."
Hard to predict expenses
Some health plan administrators are distressed that Congress may scale back such accounts. Administrators have started a campaign to preserve the flexibility in the plans.
Currently, employers can set the yearly contribution limit. Federal employees, for example, have a cap of $5,000, says Joe Jackson, CEO of WageWorks, which runs nationwide FSA programs.
Capping it at $2,000 would reduce the value of the benefit, hurting those who battle chronic conditions, he says.
Although many employers offer flex accounts, not all employees take advantage of them. About 20% of workers offered an FSA take advantage of it, says Paul Fronstin, director of the health research and education program at the Employee Benefits Research Institute, a non-partisan group in Washington.
During plan enrollment, FSA participants must decide how much to set aside in pretax money from their paychecks. They can get reimbursed for co-payments and deductibles, dental care, eyeglasses and certain other expenses.
If employees don't use all the funds during the year, they lose them. The remaining money goes back to the company.
"It's ridiculous the way that it's set up now," says Allen Pendergrass, an engineer in Decatur, Ala. "You can't predict a lot of the routine expenses. It's like they don't want people to be able to take advantage of it."
Pendergrass, who is married and has three children, has been able to predict health expenses several of the past 11 years. But this summer he had a root canal and two crowns.
An FSA would have been helpful, but he had not expected the expenses.
The most recent estimate of the average contribution to an FSA is about $1,400, Fronstin says. "So the average person wouldn't be affected by the $2,000 limit."
Benefits high-income workers
Some industry experts say Congress needs to re-evaluate FSAs to determine whether they have any place in health insurance.
"It's a very regressive tax policy," Ginsburg says. "Call it a broadly available tax loophole that is hard to defend."