Health savings accounts (HSAs) and flexible spending accounts (FSAs) allow workers to set aside earnings in tax-sheltered accounts for medical expenses. Earnings go into the accounts pre-tax and can be used for things that aren’t covered by health insurance, like eyewear, orthodontia and even exercise equipment.
Because of health care reform, HSAs and FSAs underwent some changes starting in 2011:
- Penalties for using the accounts for non-medical expenses have increased.
- Account holders no longer can use funds for over-the-counter drugs unless they obtain prescriptions first.
- In 2013, the amount FSA holders will be able to contribute each year will be capped at $2,500.
Republican lawmakers and grassroots organizations alike are seeking to reverse these changes, arguing that they damage the flexibility these accounts are known for.
Conservative organization FreedomWorks has urged House Republicans to take a stand by increasing the amount that account holders are allowed to contribute to their HSAs each year. In a February 2011 letter to U.S. House Speaker John Boehner, FreedomWorks Chairman Dick Armey recommended raising the annual contribution maximum from $3,050 to $8,000 for individuals, and from $6,150 to $16,000 for families.
Armey’s letter also pushes for increased flexibility for the accounts — letting employers deduct the amount they contributed to their employees’ HSAs from the business’ taxes, for example, and allowing retirees to roll their accounts into their 401ks and IRAs.
Meanwhile, there are efforts in Congress to do away with the new HAS and FSA restrictions. Sen. Kay Bailey Hutchinson, R-Texas, and Rep. Erik Paulsen, R-Minn., have introduced legislation known as the Patients’ Freedom to Choose Act. The measure would remove the cap that the health care reform law placed on FSAs and erase restrictions on over-the-counter drugs.
Why are some opposed to the changes?
HSAs and FSAs are innovative accounts that allow people to better spend their health care dollars by giving them the flexibility to shop around and manage their own health care, according to Hutchison. Limiting contributions and excluding over-the-counter drugs could undermine that flexibility and place a burden on doctors when patients tie up their time with requests for prescriptions, she says.
Another vital aspect of these accounts, according to Hutchison, is their tax-exempt status. Lower contribution caps could bump some taxpayers into higher brackets. This is necessary to help pay for health care reform — but opponents, like Hutchison and her bill’s co-sponsors, point out that it would increase Americans’ tax burdens.
Armey’s letter to House Republicans, meanwhile, claims that the changes would rob health care consumers of autonomy. The accounts, according to the letter, are a vital component of a “patient-centered system” that lets patients make “free choices” and deal with the consequences. Moreover, HSAs and FSAs help ensure that doctors are paid for their services at market rates. Traditional health insurance, Armey argues, shields Americans from what health care truly costs — and HSAs and FSAs allow them to spend their own money and encourage them to shop around.
More critics join the backlash
In addition to politicians, various groups are criticizing the changes as well. Back in March 2010, just before the health care reform law was passed, the National Center for Policy Analysis (a conservative think tank) called the changes to HSAs “insidious” and said that health reform would eventually “delay, deny, defeat and kill” them.
A campaign called Save Flexible Spending Plans has also sprung up, calling FSAs an “unintended victim of health care reform.” Such accounts are a “safety net” for those who rely on them to pay their medical bills, the group claims. Not being able to afford supplies for chronic conditions could force patients to skip treatment altogether.