Anything's possible with health care reform, including repeal

Momentum appears to be picking up to repeal the section of the Patient Protection and Affordable Care Act that imposes new restrictions on health care spending accounts. First, there was the Patients Freedom to Choose Act proposed by Kay Bailey Hutchinson (R-Texas) and Erik Paulsen (R-Minn.). The act seeks to repeal the elimination of over-the-counter drugs as a reimbursable expense and to lift the $2,500 cap on health care spending accounts that becomes effective on Jan. 1, 2013.

On May 10, numerous industry groups co-authored a letter to Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell urging them to repeal the restriction placed on tax-preferred accounts for the reimbursement of OTC medications without a doctor's prescription.

Before health care reform, it was up to the employer to set the maximum contribution amount for a health care spending account. Most employers cap the contribution amount to protect themselves against paying out claims from an unfunded account. This is because the full goal amount for a health care spending account is available to the employee from the start of the plan year, unlike dependent care spending accounts, for which reimbursement is limited to the account balance.

Although tax advantages can be substantial, the use-it-or-lose-it rule causes employees to shy away from these accounts. Participation hovers at 20% for many employers.

So what's to be gained by the restrictions imposed by PPACA? The Joint Committee on Taxation pegs the revenue gain for the imposition of these restrictions at $2.2 billion in 2013. By 2014, when the health care exchanges go into effect, the cumulative savings is estimated to be $7.2 billion.

And what's to be lost? For the participant, the lost savings opportunity can range anywhere from under $100 to thousands of dollars, depending on the absent contribution amount and the tax bracket. For example, suppose a participant in the 25% tax bracket would have contributed $5,000 in the absence of the $2,500 cap. The lost federal and FICA tax savings opportunity for that participant amounts to $816. The website, www.savemyflexplan.org, provides a very easy tool for calculating the impact of the $2,500 cap.

And then there's the impact of eliminating OTC drugs as eligible expenses. As of Jan. 1, participants can no longer receive reimbursement for OTC drugs unless a prescription or a letter of medical necessity from the prescribing doctor, as well as a receipt, accompanies the claim form.

Flexible health care spending accounts are among the last legitimate tax shelters left for the average American. According to www.savemyflexplan.org, the average health care spending account participant earns $55,000 annually. These are people who rely on the tax-favored status of the account to save on health care expenses. The ability to save a little money by avoiding taxes will get smaller, unless Congress can be swayed to repeal these new restrictions. And constituents can evoke change. Remember the Medicare Catastrophic Coverage Act of 1988? The uproar from the senior sector caused its demise just a short time after its unveiling.

Anything's possible.

Contributing Editor Leanne Fosbre is a senior summary plan description writer with HighRoads, an HR IT consulting company headquartered in Woburn, Mass. She can be reached at lfosbre@highroads.com.