New leaders in Congress called upon to fix restrictions on flexible spending accounts

Nov 12 2010

Save Flexible Spending Plans today called on the new leaders in Congress to follow through on their campaign promises to fix problems with the health care reform law, including restrictions on employer-provided flexible spending accounts (FSAs).  

The Patient Protection and Affordable Health Care Act includes several restrictions on FSAs, which were incorporated to pay for a portion of the health reform bill.  First, starting on January 1, 2011, participants will need a doctor’s prescription in order to use their FSAs to pay for over-the-counter (OTC) medications, such as allergy medicine and cough syrup.  Second, beginning on January 1, 2013, contributions to FSAs will be capped at $2,500 per year. 

“It was never a good idea to fund health reform on the backs of hard-working Americans who use flexible spending accounts to manage and contain health costs,” said Joe Jackson, chairman of Save Flexible Spending Plans and CEO of WageWorks, Inc., a benefits provider based in San Mateo, CA.  “To improve and fix the health reform law, Congress should quickly repeal the requirement starting January 1, 2011 that a doctor’s prescription is needed for consumers to use their flex accounts to purchase over-the-counter medications, including Claritin, Zyrtec and Tylenol.  This provision will not only drive up health care costs, but it is an utter waste of consumers’ and physicians’ limited time.”

Jackson recommends Congress preserve the usefulness of FSAs by taking the following actions:  

Repeal the OTC Prescription Requirement

Employee benefits providers and retailers expect that the new OTC medication prescription requirement will blindside consumers and create an administrative nightmare.  The new rule will also increase costs to the health care system since additional office visits will be required for patients seeking prescriptions to use their spending accounts for OTC medications.

If Congress can’t find a way to remove the restriction altogether, then it should at least follow the recommendation of leading industry groups, including the National Association of Chain Drug Stores, who have requested a delay in implementation of the provision in order to give providers and retailers an opportunity to educate consumers and develop applicable compliance procedures.  

Remove the “Use it or Lose it” Provision

Today, FSA participants are required to spend their entire annual election before the end of the calendar year (or, in some cases, an extension deadline), or those funds are forfeited and returned to their employers.  This “use it or lose it” rule often discourages individuals from utilizing FSAs to save on their health care expenses for fear that they will lose any remaining balance.  Additionally, this forfeiture rule is no longer necessary now that an FSA contribution cap is set to go into effect on January 1, 2013.  

Rather than forcing consumers to forfeit or spend unused money at the end of a plan year, Congress should revise the rule to allow participants each year to roll over up to $500 or cash-out unused FSA funds.  With participants paying taxes on those funds or rolling over dollars into the next year, either solution would generate additional revenue for the federal government.

Increase the Contribution Cap

The future cap on FSA contributions will force approximately seven million hard-working Americans who use their FSAs to pay for out-of-pocket health care expenses that exceed the $2,500 limit to pay higher taxes and health care costs.   Sadly, Americans with the highest out-of-pocket health care costs – those with chronic conditions or children with special needs – will be hit the hardest by this restriction.  According to the Robert Wood Johnson Foundation, individuals and families with chronic illnesses incur annual out-of-pocket expenses that average $4,398 per year, which significantly exceeds the proposed $2,500 cap.

A more appropriate response is for Congress to set a cap at $5,000.  

“FSAs are a lifeline for working Americans, often making the difference between staying afloat and going into debt over health care needs, and sometimes between getting necessary treatment and avoiding it altogether because of the cost. They enable participants to play an active role in managing their health care and should be preserved,” added Jackson.

SOURCE Save Flexible Spending Plans