The New Health Care Bill Limits Flexible Spending Accounts

My family is one of the many that is negatively affected by the passage of The Patient Protection and Affordable Healthcare Act. I am not throwing rocks through windows or hurling racial slurs but I am not a happy American at the moment. There are certain parts of the health care bill that will benefit my family (barring rescission, allowing my daughter to remain on our insurance policy until she is 26 and preventing our insurance company from capping coverage). However, there is one provision in the new health care bill that will create a severe strain on our budget - - the limit on flexible spending accounts (FSA). Under The Patient Protection and Affordable Care Act passed by the Senate, Section 9005 entitled "Limitation on Health Flexible Spending Arrangements under Cafeteria Plans" provides in part that "an employee may not elect for any taxable year to have salary reduction contributions in excess of $2,500 made to such arrangement.''. Capping the contributions to FSA's will cause many individuals to be unable to pay their healthcare costs. The House's Health Care and Education Affordability Reconciliation Act of 2010 states in Section 1403 that "Section 10902(b) of the Patient Protection and Affordable Care Act is amended by striking December 21, 2010 and inserting December 21, 2012." Therefore, the House of Representatives tried to ease the burden on families that rely on flexible spending accounts; however, they only delayed the problem rather than fixing the problem.

My husband works for a building products company in Greenville, South Carolina that recently changed insurance coverage for their employees. We now have a high-deductible insurance policy that requires our family to pay $2,500 out of pocket before the insurance company will begin paying 80% of our medical costs. Our daughter has several health issues, including chronic asthma, severe allergies and eczema among others. The picture above is our daughter when she had H1N1 late last year - - we had several trips to the doctor and many prescriptions due to her other medical conditions and relied heavily on our FSA to pay the out-of-pocket costs.

We pay over $300 per month for health insurance because we fear if we have no insurance we will face a major health care emergency and not be able to pay for medical care. However, because of the high deductible my husband's company requires with his medical insurance coverage, we do not benefit from our health insurance until we met the $2,500 deductible. Therefore, we have relied on our FSA to help reduce the burden of this deductible and rising medical costs. Our FSA provides for a maximum contribution of $5,500 per year that we max out each year. By doing this, the entire $5,500 is available to us at the beginning of each year even though the amount is deducted in equal installments from my husband's pay throughout the year. It boils down to financing (tax free) our out of pocket medical expenses over the course of the entire year. Our FSA also has the added benefit of being deducted pre-tax from my husband's paycheck saving us money each week as well as lowering our gross income for tax purposes at the end of the year.

Beginning in 2013, the health care bill will limit the amount we can contribute to our FSA to $2,500 per year. For our family this will create a hardship because we will be required to use the entire amount of our FSA each year just to reach our deductible. Thereafter, all medical expenses, including the eight prescriptions my family takes each month, will cost 20% of the full purchase price rather than a co-pay as last year. A prescription that would normally cost us $25 (a co-pay) will now cost $60 (20% of $300). This worried me when my husband's company changed his medical insurance last year; however, I knew that we would be able to cover these higher costs with our FSA - - under the new health care legislation that will not be possible.

If this was not enough to deal with, the health care bill also limits what medical expenses we may pay with our flexible spending account. Over-the-counter medications will be removed from the approved medical expenses, which will add to our monthly out of pocket medical costs to be paid with post-tax dollars. Furthermore, because the contributions to our FSA will be capped at $2,500, our taxable income will increase thus raising the amount of income taxes we pay each year without an increase in gross income throughout the year. The government is thrilled about this added revenue and has even added an incentive for employers to completely abandon FSA's - - an excise tax of 40% paid by employers who offer flexible spending accounts to their employees. I expect my husband's company to cease offering their employees flexible spending accounts in anticipation of this excise tax, which will only make matters worse for our family.

Sources:

SaveMyFlexPlan.org

WallStreetJournal.com

HeartLand.org

Democratic Policy Committee (Patient Protection and Affordable Care Act, December 24, 2009) (page 1960)

Health Care and Education Reconciliation Act of 2010 (page 95)