Health expense accounts could face cuts

— -- 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.