Health Reformer's Lexicon: Flexible Spending Accounts

The Health Reformer's Lexicon is a weekly feature that will examine key words, terms and phrases in health reform and explore their meaning and orbit.

Today’s term: Flexible spending accounts (FSAs)

Sometimes called flexible spending arrangements, FSAs are employer-established benefit plans that allow employees to pay for qualifying health care expenses with pre-tax earnings.

Employees elect to set aside a portion of their incomes to pay for medical expenses not covered by insurance—such as deductibles, copayments, dental or vision expenses, or drugs. Employees can draw on the accounts using FSA debit cards, known as Flexcards.

FSAs are “use it or lose it” accounts: Any balance left in an employee’s account at the end of a coverage period—typically a calendar year—is forfeited back to the plan administrator.

Why it matters: As the IRS enumerates, FSAs offer several benefits to health care consumers:

• Contributions made by your employer can be excluded from your gross income.
• No employment or federal income taxes are deducted from the contributions.
• Withdrawals may be tax free if you pay qualified medical expenses.
• You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account.

But some health care policy analysts have scrutinized FSAs and concluded that they encourage excess utilization of health care, because they can be used to purchase things that may not be medically necessary, cost-effective or provide meaningful health value. Moreover, their “use it or lose it” structure may encourage wasteful spending at the end of coverage periods.

Roots: Flexible spending accounts were first authorized in the Revenue Act of 1978 under section 125 of the federal tax code. For that reason, they are sometimes called “125 plans.” (They are sometimes called “cafeteria plans,” too, because they are a means by which an employer can offer employees a choice between taxable and nontaxable benefits—not just for health care, but also for dependent care or certain other purposes.)

Where the term appears: The recently passed health care reform law limits the amount that employees and companies can contribute to FSAs to $2,500 per year starting in 2013, with annual cost-of-living adjustments in following years. (Unlike FSAs for dependent care, there was previously no federal cap on the amount that could be contributed to FSAs for health care.) Recent news reports have examined the impact of this for consumers, suggesting that people may want to plan costly elective treatments such as braces before the new limit takes effect. Coverage also has delved into the rationale for the policy change—which some portray as a way to reduce wasteful spending and others portray as a way to raise revenue to pay for other aspects of health reform.

Previous Lexicon entries include:
- Patient Centered Medical Home
- Individual Mandate
- Uncompensated Care

Comments

[Douglas Thompson]

A Government proposal for Change-Health Care Reform Act

March 2010 may stand out as a monumental month for change with the Obama Administration-Americans can look forward to changes in the current health care system through the passing of the Health Care Reform Act. Though there are many details that need to be ironed out, there are many changes that have been established.

There are two factors that will have the largest impact for Americans and America’s health brokers:
1) The fact that as of 2014, it is required by law for employers to offer affordable health insurance plans to all employees.
2) As of 2014, all Americans will be required to acquire health insurance.

Employers-For businesses over 100 employees, there may not be many changes. The difference may be that part-time employees will be offered aid with a percentage of hours in relation to full-time employment. This will offer benefits to those who do not have that same opportunity currently as a part-time employee. With businesses under 100 employees, there will be opportunities for credits from the government to offer aid with those employees. A percentage will be paid, based on payroll that will pool to help those who acquire insurance through an exchange, where many of America’s health brokers will provide different affordable insurance plans for all individuals.
What is the incentive for employers to offer insurance?
Employers will face a fine of up to $2000 per employee for not providing insurance coverage to an individual employee. These fines can be diverted if the employer offers an alternative means to acquire insurance (which would require assistance through the exchange).
Individuals-As of 2014, all Americans (with the exception of certain special case individuals) will be required to carry some form of insurance. Insurance will either be offered through employment or affordable insurance can be purchased through the exchange. America’s Health brokers will offer many new plans and opportunities to acquire cheap health insurance.
What is the incentive for individuals to acquire insurance?
According to the law, there will be a penalty assessed to all Americans who fail to acquire health insurance by the year 2014. The fine will be originally set at $695 per person, per year. This will hopefully be enough to encourage those who are not insured to carry some form of low cost health insurance.
America’s health brokers will be seeing some changes that could affect them. Pre-existing conditions will no longer be applicable in denying insurance to children. As of 2014, America’s health brokers cannot deny health insurance to anyone due to a pre-existing condition. There are other factors that will change certain policies and conditions.
The Health Care Reform Bill is an opportunity to reorganize the condition of care that is offered in the United States. There are many issues that riddle the care of many Americans, so hopefully this will provide solutions to some of the larger issues. One key aspect is the fact that all Americans will have the opportunity to have health care. This will be advantageous in many aspects: Prescription medications, preventative care, and treatment.

[Douglas Thompson]

Health Care Reform Act-intent for Change

For many years, America’s health brokers have been offering health insurance to individuals, small businesses and large businesses for decades, yet the enrollment statistics have revealed a steady decrease on an annual basis. The number of uninsured Americans is estimated to be as high as 30 million, and the Health Care Reform Act offers a solution. Not only will there be a higher enrollment number for America’s health brokers, but as of 2014, it will be required by law for every American to obtain health insurance. Every single American will be impacted by the New Health Reform Bill, making it one of the most important measures of the 21st Century.
Businesses
The main focus will be on businesses of 50 or more employees, in which they will be required to offer individual health plans, as well as family plans to all employees or face some stiff fines from the government. The amount comes to $2000 per uninsured employee, though there are exemptions to this fine. If you as an employer assist an individual with acquiring a personal health insurance plan through an open market called an exchange, then it would result in no fines. This only applies to an individual who makes a certain amount under the Federal Poverty Level, and the premiums are over 8% of his annual income.
America’s health brokers can rest easy in the fact that there will be expanded coverage, though there may be more competition. With the rise in individuals who will have health insurance, there may not be as large of a risk as one may assume. Though the new bill will require America’s health brokers to enroll individuals with pre-existing conditions, there will also be a new population of young individuals who will be insured with fewer health problems.
It is understood that larger companies already provide a group insurance plan (HMO, PPO) that covers all areas of needs for the population of employees. These policies will change very little, but there may be some changes in where the funding for the new health care plan will come. It is proposed that those making a certain amount of money, both individuals and couples, will be taxed at a higher percentage than others. This will provide money that can be used for the exchange and making sure that all individuals will be offered an affordable health plan.
There are still a few years before the plan goes into full effect, though some of the measures will be enforced immediately. There will be plenty of time to sort out the details and iron out the difficulties. As for the plan, anyone who does not have health insurance as of January 1, 2014, will be penalized a certain amount of money, and this amount could become worse if health insurance is continuously neglected. There has never been a better opportunity for America’s health brokers in terms of acquiring a new customer base-a broader customer base. Also, there has never been a better time in history for individuals being provided with the resources for the necessary medical treatment. This is a very unique time, with history in the making. Finally, there will be health care for all.