The Employers Council on Flexible Compensation (ECFC) is fighting to repeal parts of the health care reform law that establish annual caps for flexible spending arrangements and require a prescription for over-the-counter medications to be reimbursed under FSAs. It also is pushing for a change to allow for a cash-out at the end of the year in place of the use-it-or-lose-it system that dates back to the 1980s.
Over 100 advocates for cafeteria plans and FSAs flooded the Capitol hallways recently, pushing lawmakers to reconsider certain provisions in the Patient Protection and Affordable Health Care Act that curtail these benefits.
Employees can make tax-advantaged “salary reduction” contributions for health insurance and child care through cafeteria plans and FSAs.
These plans “are an important tool that is available to employees who participate in the plan, and it really goes to the people who need it the most,” explains Allen Wishner, a board member for the ECFC and CEO of Flexible Benefit Service Corp.
For people with chronic conditions or just expensive everyday medical expenses, such as glasses, dental care or sick children, these plans help to reduce out-of-pocket costs.
At the beginning of the health care debate, legislators were going to eliminate FSAs, but lobbying efforts by ECFC and others were able to preserve them by agreeing to an annual cap at $2,500, indexed for inflation. They agreed because they believed they could remove the cap in the future.
Health care will become more of a personal responsibility as health care reform continues through the implementation process, and FSAs help to mitigate out-of-pocket expenses in light of cost shifts from employer to employee, and government to taxpayer.
“Illness doesn’t have economic boundary lines. It could be the lowest paid rank-and-file employee who could benefit the most because they may have a chronic condition or have children with chronic conditions,” says Wishner.
As a last minute addition to PPACA, plan participants now can’t be reimbursed for over-the-counter medications through their FSA unless they have a prescription.
“They’ll use a more expensive prescription medication because you’ve removed the convenience of the over-the-counter medication,” Wishner concludes.
Getting rid of the use-it-or-lose-it condition would benefit the consumer, he adds. “It would take the guess work out for people with chronic conditions. It would allow them to maximize the benefit, and if they don’t use the money, the funds would be subject to income tax, just as it would be without it,” he says.
Wishner explains the problem from an employer standpoint: “The employer doesn’t want that forfeiture either. It makes more sense to have a more open environment where I can put away a certain amount of money and pay for my out-of-pocket expenses that I know are coming my way in a more favorable environment, but also have the peace of mind knowing that if I overestimate, I get it back as taxable income.”
The notion that FSAs promote over-utilization of health care is very misinformed, Wishner notes.
“There is no abuse of FSAs or HRAs,” Wishner exclaims. “I think that we’re very close [to making this change] because HRAs and HSAs don’t have a use-it-or-lose-it rule. The fact that an FSA has [such a] rule is archaic. It doesn’t need to be there.”
Overall, Wishner is optimistic.
“It is encouraging to see bipartisan efforts supporting this legislation. We encourage employees and employers everywhere to speak up and visit the website www.savemyflexplan.org. It is a quick and easy way to tell your representative how important flex and pre-tax benefits are to you.”
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