TASC CEO Blog

Our U.S. Representatives and Senators are back at work after their summer break and the President is turning up the heat.  From all appearances, efforts to reform our country’s healthcare system are gaining traction.  Senator Max Baucus (D.-Montana), Chair of the Senate Finance Committee has indicated that a bill could be released as early as this week with or without the level of support he was shooting for.

Once a bill is released by the Senate Finance Committee, it will be coupled with the Affordable Health Choices bill from the Senate Committee on Health, Education, Labor and Pensions (HELP) Committee and brought to the Senate floor.  Most likely, the bills will be merged into a blended, compromise bill.  This will occur in the Senate, while the Affordable Health Choices Act of 2009 bill from the House remains in play. The House bill and the Senate Finance Committee bill will be approaching the issue of how to “pay-for” the reform effort from different angles. Ultimately, the bills will need to converge into one cohesive bill to then finally arrive at the President’s desk. Closer, but still a way to go.

The current Finance Committee bill features four items that would impact our customers negatively:

1. The health Flexible Spending Account (FSA) benefit will be capped at $2,000.
2. No longer will over-the-counter medication be tax deductible; these items will not be considered a qualified expense in FSAs, Health Reimbursement Arrangements (HRAs), and Health Savings Accounts (HSAs).
3. An excise tax will be placed on health benefits totaling more than $8,000 for singles and more than $21,000 for families.
4. The cap and the amounts related to the excise tax will be tied to the Consumer Price Index (CPI).

I’ve closely studied these four items, and believe the proposed cap on FSAs will have no material affect on whether a person will or will not participate in a FSA.  Of the several hundred thousand Participants in our FlexSystem service, fewer than 20 percent run more than $2,000 through the Plan annually. To state that differently, 80 percent of our Participants will feel no affect from this proposed cap (at this time…see reference to CPI discussed later in this post). I believe that even those who contribute more than $2,000 a year will continue to participate up to the limit for the tax savings available. The net tax relief to those funding more than $2,000 will decrease, but their participation is expected to continue.

Our industry on behalf of our customers is attempting to improve the FSA by inserting a provision into the bill to eliminate the use-it-or-lose-it rule.  TASC believes doing so would prompt a positive reform of the FSA and place it on par with other health accounts.  Keep in mind that the window of opportunity for adding anything to this bill is quickly closing.  Soon, the only items that will be considered are those which could directly affect the chances of the bill getting that much needed vote(s) to pass in Congress.

In point two, the removal of the over-the-counter deduction returns FSAs to pre-2003 status.

I believe point three will receive the lion’s share of attention from the media, because so many individuals could be impacted.  In effect, this excise tax will place a limit on all health benefits, by acting as as a penalty for those exceeding an aggregate tax free health care benefit limit.  While there are potential negative effects of such an excise tax, this still would not mean a complete loss for taxpayers.   Depending on the final details, it remains likely that we will see a tax value for benefit amounts that exceed the limit, with the net tax value likely reduced as a result of the excise tax.

The cap/limits being tied to the CPI mentioned in the fourth point may represent a more significant impact as we move forward.  Over the past decade or so the average increase in the CPI has been about two to three percent annually.  In fact, for 2009 the CPI has decreased, not increased.  Over the same time period, healthcare costs have risen by a percentage several times larger than the CPI.  If healthcare costs continue to increase at a faster rate than the CPI, any caps/limits will become more painful.  Meanwhile, if cap/limits aren’t implemented until 2013, you will lose ground right out of the gate, simply because a $2,000 medical expense cap set in place for 2013 is roughly equivalent to $1,500-$1,600 in today’s dollars.

As I have stated before, I do not believe these proposed changes will dramatically hurt those who benefit from our services.  Don’t mistake my matter-of-fact communication on this subject to imply that I am “okay” with these possibilities. Most of our customers fall within our nation’s middle class and will feel a tax increase–an increase in the cost of their healthcare. In his speech just a week ago this increase is something the President vowed not to let happen. We are not pleased that some customers will face increased healthcare costs.  At the same time, we are pleased that most of our customers will be able to continue receiving the many benefits of our services and the tax savings they represent.

I encourage you to voice your concerns to your representatives in Congress.  Let them know how strongly you feel about continuing tax-free medical expenses. Visit savemyflexplan.org to learn more and voice your opinion.

This post was made before the release of the bill that is expected to surface from the Senate Finance Committee.  This bill is expected to arrive for public consumption any day now. Look for a post in the near future notifying you of the bill’s release and any changes (corrections) to what I’ve written here. Closer, but still a way to go.