If you use a tax-free flexible spending account at work to offset deductibles and other unreimbursed healthcare costs, you should be aware of actions in Congress to significantly trim that employee benefit. The Patient Protection and Affordable Care Act, H.R. 3590, includes a provision that would cap pre-tax contributions to healthcare "flex" plans to $2,500 a year and eliminate the option to use those funds for over-the-counter medications and other everyday health-maintenance products. Currently employers can set their own cap.
A worker in the 25-percent tax bracket who now sets aside $3,000, for instance, would lose a tax benefit worth $250. A worker setting aside $5,000–a ceiling imposed by many large companies and the federal government—would lose $625. Put another way, that worker would pay another $625 in federal tax.
Supporters of the change note that it would result in added tax revenue of $5.4 billion, which would help offset the massive estimated cost of healthcare reform. Further, they assert, healthcare flex plans primarily benefit high-income workers, who gain a bigger tax break because they're at a higher tax bracket. The average amount contributed by workers who use these plans is about $1,400, according to the Employee Benefits Research Institute, so the change to a $2,500 may be invisible to most.
But folks who use that benefit to the maximum stand to lose quite a bit. That includes patients with chronic conditions who need the funds to cover high deductibles, extensive co-pays, and costly equipment under-reimbursed by health insurance. For example, many insurance plans don't cover—or minimally cover—hearing aids; flex funds can help pay for them.
Sen. Chuck Schumer (D-NY) this week added an amendment to H.R. 3590 to at least index that $2,500 to inflation. The Senate version of the bill also allows for purchase of over-the-counter meds. The catch is that you can only use the OTC meds if you get a doctor's note, according to Save Flexible Spending Plans, an offshoot of the Employers Council on Flexible Compensation, an organization representing companies that administer flex plans.
Do you use a healthcare flex plan? Do you oppose this change? Or do you think this is a benefit we can stand to lose in order to save money on healthcare reform?—Tobie Stanger
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