Nonprofit Group Working to Preserve Pre-Tax Flexible Spending Accounts
By Heather M. Rothman and Brett Ferguson
Publication date: 08/11/2009
An $8 billion revenue-raising provision in the House Democrats' health care bill (H.R. 3200) to limit the use of pre-tax health spending plans has given way to a lobbying campaign that sponsors hope will preserve the benefit, or at the very least minimize the impact of proposed changes.
Specifically, the provision approved by the Ways and Means Committee would exclude over-the-counter medicines from eligibility for reimbursement from health reimbursement arrangements, health flexible spending accounts, health savings accounts, and Archer medical savings accounts.
“We obviously would like to have FSAs come out of this debate untouched, unscathed,“ said David Carver, the executive director of the Employers Council on Flexible Compensation. “Our whole point is to be participatory and make sure we communicate what we think.”
Carver said although the House proposal applies to multiple types of tax-advantaged health care savings plans, within his membership FSAs are the most prominent benefit. ECFC, a nonprofit organization dedicated to maintaining and expanding tax-advantaged accounts, stated that at least 35 million participants would be affected by the change, while congressional Republicans have said the figure could be upward of 50 million.
What Are FSAs?
FSAs, first created in 1978, allow employees to reduce their monthly pay by a chosen amount and then use those dollars tax-free to pay for certain medical expenses.
The program was expanded in 2003 when the Internal Revenue Service added over-the-counter drugs to the list of tax code Section 213 eligible medical expenses.
Currently, IRS allows employers to determine the annual cap for FSAs. Because rollovers are not permitted, under a “use-it or lose-it” policy, at the end of the year, if an employee cannot spend down his or her account, the money becomes the employer's.
Proponents like ECFC say the plans help people meet the costs of their health care needs with pre-tax dollars. Opponents, like some congressional Democrats, say they are tax shelters for the wealthy.
Embarking on Educational Campaign
The House is not alone in contemplating changes to FSAs to help pay for a roughly $1 trillion overhaul of the health care system.
“That's not something we're looking at,” Finance Committee Chairman Max Baucus (D-Mont.) said of the House plan. “We have been looking at FSAs, but that's not part of it.”
In mid-May, the Finance Committee issued an “options paper” of potential offsets, including eliminating or limiting the amount of salary reduction contributions to FSAs and HRAs.
In response to the discussions in both chambers, Carver told BNA Aug. 3 that ECFC recently began a newspaper advertisement campaign inside the Capital Beltway to educate Congress and the public on the benefits of FSAs, noting in the ads that they “pay for essential out-of-pocket health expenses” such as doctor visits, hospital admissions, drugs, dental work, and eyeglasses.
Different View by Party, Sometimes
The provision to limit the reach of tax-advantaged plans was added at the Ways and Means Committee markup by Rep. Jim McDermott (D-Wash.) to pay for a provision extending tax benefits for employer-provided health care to domestic partners.
Ways and Means Committee ranking member Dave Camp (R-Mich.) recently told BNA he would like to see the provision eliminated if the health care legislation advances. He said allowing FSAs to be used for over-the-counter drugs helps keep health care costs down because rather than getting a prescription, an individual can go to the pharmacy and get medicine off the shelf. “That is a lower-cost treatment for your condition and if that does take care of it, you might not need to go to the [emergency room] or go to the doctor.”
On the other side, committee member Artur Davis (D-Ala.) said he believes tax-advantaged accounts work well for a “small group” of taxpayers, notably “people who are high-income, very healthy, and very young.” Davis said “those aren't, frankly, the people that I think we're trying to serve by expanding access to coverage.”
Carver disagreed, pointing out that the average annual income of an FSA participant is $55,000. He said two “myths” about FSAs really bother him. The first is that they are for the rich. FSAs, he said, “are subject to discrimination testing, meaning the highly compensated cannot abuse them because they cannot get access to them unless the people that would be in the non-highly compensated category are participating, effectively eliminating their ability to abuse them.”
The second “myth,” he said, is that they are regressive. “The tax code is regressive,” Carver said. “If you want to fix regressive, fix the tax code.”
But legislation (H.R. 2526) introduced this year by Democratic Caucus Chairman John Larson (Conn.), a member of the Ways and Means Committee, to increase participation in medical FSAs demonstrates the issue does not always fall along party lines. The bill is co-sponsored by Camp, and committee members Ron Kind (D-Wis.) and Charles Boustany (R-La.).
‘Save My Flex Plan'
Just days before the Ways and Means Committee approved its bill, ECFC created a separate website, savemyflexplan.org, to serve as the centerpiece of its grassroots campaign.
The website allows visitors to send e-mails to Obama, Vice President Joe Biden, senators, and House members urging them to “protect” tax-advantaged health spending plans.
The complete text of this article can be found in the BNA Daily Tax Report, August 11, 2009. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
© 2009, The Bureau of National Affairs, Inc.
Nonprofit Group Working to Preserve Pre-Tax Flexible Spending Accounts
By Heather M. Rothman and Brett Ferguson
Publication date: 08/11/2009
An $8 billion revenue-raising provision in the House Democrats' health care bill (H.R. 3200) to limit the use of pre-tax health spending plans has given way to a lobbying campaign that sponsors hope will preserve the benefit, or at the very least minimize the impact of proposed changes.
Specifically, the provision approved by the Ways and Means Committee would exclude over-the-counter medicines from eligibility for reimbursement from health reimbursement arrangements, health flexible spending accounts, health savings accounts, and Archer medical savings accounts.
“We obviously would like to have FSAs come out of this debate untouched, unscathed,“ said David Carver, the executive director of the Employers Council on Flexible Compensation. “Our whole point is to be participatory and make sure we communicate what we think.”
Carver said although the House proposal applies to multiple types of tax-advantaged health care savings plans, within his membership FSAs are the most prominent benefit. ECFC, a nonprofit organization dedicated to maintaining and expanding tax-advantaged accounts, stated that at least 35 million participants would be affected by the change, while congressional Republicans have said the figure could be upward of 50 million.
What Are FSAs?
FSAs, first created in 1978, allow employees to reduce their monthly pay by a chosen amount and then use those dollars tax-free to pay for certain medical expenses.
The program was expanded in 2003 when the Internal Revenue Service added over-the-counter drugs to the list of tax code Section 213 eligible medical expenses.
Currently, IRS allows employers to determine the annual cap for FSAs. Because rollovers are not permitted, under a “use-it or lose-it” policy, at the end of the year, if an employee cannot spend down his or her account, the money becomes the employer's.
Proponents like ECFC say the plans help people meet the costs of their health care needs with pre-tax dollars. Opponents, like some congressional Democrats, say they are tax shelters for the wealthy.
Embarking on Educational Campaign
The House is not alone in contemplating changes to FSAs to help pay for a roughly $1 trillion overhaul of the health care system.
“That's not something we're looking at,” Finance Committee Chairman Max Baucus (D-Mont.) said of the House plan. “We have been looking at FSAs, but that's not part of it.”
In mid-May, the Finance Committee issued an “options paper” of potential offsets, including eliminating or limiting the amount of salary reduction contributions to FSAs and HRAs.
In response to the discussions in both chambers, Carver told BNA Aug. 3 that ECFC recently began a newspaper advertisement campaign inside the Capital Beltway to educate Congress and the public on the benefits of FSAs, noting in the ads that they “pay for essential out-of-pocket health expenses” such as doctor visits, hospital admissions, drugs, dental work, and eyeglasses.
Different View by Party, Sometimes
The provision to limit the reach of tax-advantaged plans was added at the Ways and Means Committee markup by Rep. Jim McDermott (D-Wash.) to pay for a provision extending tax benefits for employer-provided health care to domestic partners.
Ways and Means Committee ranking member Dave Camp (R-Mich.) recently told BNA he would like to see the provision eliminated if the health care legislation advances. He said allowing FSAs to be used for over-the-counter drugs helps keep health care costs down because rather than getting a prescription, an individual can go to the pharmacy and get medicine off the shelf. “That is a lower-cost treatment for your condition and if that does take care of it, you might not need to go to the [emergency room] or go to the doctor.”
On the other side, committee member Artur Davis (D-Ala.) said he believes tax-advantaged accounts work well for a “small group” of taxpayers, notably “people who are high-income, very healthy, and very young.” Davis said “those aren't, frankly, the people that I think we're trying to serve by expanding access to coverage.”
Carver disagreed, pointing out that the average annual income of an FSA participant is $55,000. He said two “myths” about FSAs really bother him. The first is that they are for the rich. FSAs, he said, “are subject to discrimination testing, meaning the highly compensated cannot abuse them because they cannot get access to them unless the people that would be in the non-highly compensated category are participating, effectively eliminating their ability to abuse them.”
The second “myth,” he said, is that they are regressive. “The tax code is regressive,” Carver said. “If you want to fix regressive, fix the tax code.”
But legislation (H.R. 2526) introduced this year by Democratic Caucus Chairman John Larson (Conn.), a member of the Ways and Means Committee, to increase participation in medical FSAs demonstrates the issue does not always fall along party lines. The bill is co-sponsored by Camp, and committee members Ron Kind (D-Wis.) and Charles Boustany (R-La.).
‘Save My Flex Plan'
Just days before the Ways and Means Committee approved its bill, ECFC created a separate website, savemyflexplan.org, to serve as the centerpiece of its grassroots campaign.
The website allows visitors to send e-mails to Obama, Vice President Joe Biden, senators, and House members urging them to “protect” tax-advantaged health spending plans.
The complete text of this article can be found in the BNA Daily Tax Report, August 11, 2009. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
© 2009, The Bureau of National Affairs, Inc.
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