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Flex spending accounts face hit in health overhaul - Yahoo! News

WASHINGTON – Those tax-free spending accounts that you and your co-workers use to help pay for dental work, insurance copayments or over-the-counter drugs face a hit under the health overhaul bills in Congress — unless a coalition that includes a powerful union, insurers and others can stop it.

Bills in the House and Senate would cap at $2,500 an employee's allowable annual contribution to a health care flexible spending account.

There is no federal cap on contributions now, though companies that offer the accounts — more than 80 percent of companies employing 500 or more workers do — typically impose their own limits, usually around $5,000.

Workers can use the accounts to save pretax income, which then can be used to reimburse a range of medical expenses, including dental and vision costs, prescription and over-the-counter medications and copays and deductibles — again without being taxed.

Capping contributions to the accounts would raise more than $13 billion over 10 years to help pay for Democratic health care legislation because it would limit the amount of employees' income that is exempt from taxation.

But an unlikely bedfellows coalition that is characteristic of this health care debate — where common interests can unite groups that might typically be at odds — is mobilizing to try to stop the change.

A limited print ad campaign declaring "Flexible spending accounts work!" appeared this past week in Capitol Hill publications. It's paid for by a group called Save Flexible Spending Plans that is backed by insurers, companies that administer consumer spending accounts and other businesses with a financial stake in the outcome. The United Food and Commercial Workers International Union endorsed the campaign and its logo appears on the ads.

"Our concern is that a cap of $2,500 is a definite tax on the middle class, particularly those with chronic illnesses," said Jody Dietel, executive director of Save Flexible Spending Plans and chief compliance officer at WageWorks, Inc. of San Mateo, Calif.

Advocates say the typical flexible spending account user makes $55,000 annually.

Although some lawmakers are sympathetic, the opposition appears unlikely to succeed in getting the flexible spending account cap out of Congress' health care bill. Unlike the initial Senate proposal, though, House members want to allow the cap to be adjusted so it would rise along with inflation. That would be a welcome improvement for advocates.

Aides to the Senate Finance Committee, which proposed the cap, defend it by saying it would help curb overuse of medical care. Money deposited in the tax-free accounts must be used within 2 1/2 months of the end of the plan year. That may create an incentive for people to spend all the money even if they don't have pressing needs.

In addition, committee spokeswoman Erin Shields said the impact of the cap would be limited. Data compiled by the consulting firm Mercer shows that the average flexible spending arrangement contribution in 2008 was $1,385, much lower than the one contemplated by Congress.

Mercer said that 27 percent of all employers offered health care spending accounts in 2008 — small businesses are much less likely to do so than large ones — and that 37 percent of eligible workers signed up for the accounts.

"The provision, in addition to helping reduce the overutilization of care, also affects only a limited number of people," Shields said.

Dietel said those averages are no comfort to people using the accounts to cover extreme costs of a chronic condition — say a single dad whose child has a peanut allergy requiring special treatment.

"The reality is that an average is an average," Dietel said. "It's the only tool out there that allows an individual to tailor coverage to their own individual need."