FlexSpending Changes for 2011

[Texsox]

For those of us with Flexible Spending Accounts for health care expenses, I just came across this which makes me a little unhappy. Time to write to my elected leaders. OTC drugs should be covered or else patients will begin pestering Socs into writing scrips for this stuff. BTW, is there any doubt that the insurance industry is doing anything they can to slam the Dems?

 

Important: Change to the Medical Spending Account that may affect you.

On March 23, 2010, President Barack Obama signed into law H.R. 3590, the Patient Protection and

Affordable Care Act (PPACA). This is the version of PPACA passed by the Senate on December 24,

2009. It was passed by the House on March 21, 2010.

However, enactment of PPACA was not expected to be the final word on health care reform. The

House adopted PPACA with the understanding that the Senate would agree to a second bill adopted

by the House on March 21 that made changes to PPACA. That bill, HR 4872, the Health Care and Education

Tax Credit Reconciliation Act of 2010 (the "Reconciliation Bill"), reflects last minute compromises

important to House Democrats. The Reconciliation Bill was signed in to law by the President on

March 30, 2010.

Generally speaking, health care reform is not effective until 2014; however, there is a current change

to the eligibility of over the counter items we need to make you aware of.

Effective for tax years beginning on January 1, 2011, over‐the‐counter medicines or drugs (e.g. Advil,

Ibuprofen, cough syrup) are not eligible for reimbursement under an FSA, HRA, or HSA without a doctor's

prescription. Insulin is the only medicine that doesn't require a prescription. Also supplies that

you need for medical care (e.g. contact lens solutions, bandages for wounds, thermometers) will continue

to be eligible for reimbursement.

As such, upcoming enrollment in your employer's flexible spending account should take into consideration

as of 1/1/2011, over the counter items will no longer be reimbursable under the health FSA.

As often seen, updates to this ruling may come at a moment's notice. We will make every effort to

keep our clients and participants up to date with all the latest changes and subsequent guidance.

 

[kapkomet]

WTF is the last part of your post? You think the insurance company made these rules? And I don't want to hear that they lobbied for this. No, they didn't, because they lose money on this. Big money. Don't make this partisan other then the assholes who voted this crap in ... and I do believe the majority party who set the agenda on this is Democrats.

[Texsox]

WTF is the last part of your post? You think the insurance company made these rules? And I don't want to hear that they lobbied for this. No, they didn't, because they lose money on this. Big money. Don't make this partisan other then the assholes who voted this crap in ... and I do believe the majority party who set the agenda on this is Democrats.

 

I meant this by the insurance company.

 

last minute compromises

important to House Democrats.

[kapkomet]

I meant this by the insurance company.

 

 

Yea. And your point? It was a throw in, and it was lobbied for so that they could start the process of doing away with tax free medicines, i.e. they collect the tax revenues on this - welcome to yet another tax in this bill going up. It was a plank to "raise money", yet another misnomer and lie perpetrated by the whole damn sham called "health care reform".

[Balta1701]

Yea. And your point? It was a throw in, and it was lobbied for so that they could start the process of doing away with tax free medicines, i.e. they collect the tax revenues on this - welcome to yet another tax in this bill going up. It was a plank to "raise money", yet another misnomer and lie perpetrated by the whole damn sham called "health care reform".

(Sigh).

 

So, you're in favor of the government paying for people's medicine?

[kapkomet]

(Sigh).

 

So, you're in favor of the government paying for people's medicine?

 

 

Yep. Obviously.

 

[Balta1701]

Yep. Obviously.

I want to say...part of me hated myself for writing that post and part of me loved it. I want a drink.

[kapkomet]

I want to say...part of me hated myself for writing that post and part of me loved it. I want a drink.

 

 

Okay, I have to admit, that's funny.

[Texsox]

Yea. And your point? It was a throw in, and it was lobbied for so that they could start the process of doing away with tax free medicines, i.e. they collect the tax revenues on this - welcome to yet another tax in this bill going up. It was a plank to "raise money", yet another misnomer and lie perpetrated by the whole damn sham called "health care reform".

 

 

The difference is paying for it with pre tax or post tax income.

 

I feel the same way about insurance companies taking gratitudes shots at one political party, the same way I feel about unions doing it, which is it is basically wrong. But I can see where some people will agree with the insurance companies and attack the unions.

[EvilMonkey]

TEx, enlighten me. I didn't see anywhere in what you posted where this change is something that was asked for or done by the insurance companies. So if this was brought about because of the Dems, why is it wrong for the companies, who already face criticism every time things change, to point out 'hey, this time it isn't us, it is them!'?

[NorthSideSox72]

Regardless of how or why, its stupid. You are telling me that contact lens solution is covered, but OTC meds that some people need like Aspirin or Prilosec, isn't?

 

[Texsox]

TEx, enlighten me. I didn't see anywhere in what you posted where this change is something that was asked for or done by the insurance companies. So if this was brought about because of the Dems, why is it wrong for the companies, who already face criticism every time things change, to point out 'hey, this time it isn't us, it is them!'?

 

The same way it is wrong in my eyes for Unions, for example, to blame stuff on the GOP. The Legistlative branch passed this and the Executive branch signed it. This is all part of the finger pointing that hurts out country. We have reached a point that Dems want GOP policies to fail so we they can say "told you so" and Reps want Dem policies to fail so they can say I told you so. Sad that at any time half the country wants to go down the toilet as if it is the same as a football team losing.

 

Also, in this case, are you certain the Dems wanted this provision changed, or was it the GOP? We really don't know, but it sure is easy for the insurance company to take a shot.

 

 

 

 

 

[Balta1701]

You know, despite having the option, I haven't participated in any of these HSA plans, because I thought they seemed like a bureaucratic mess, documenting receipts for specific types of purchases, etc. I don't want to endorse everything written here (and if you read the comments you'll find me one asking for a citation of the most important piece of data mentioned, the administrative costs) but I found it an interesting perspective. It's a blog post so those who don't want to read liberal blog posts should avoid.

Flexible spending accounts are wasteful from almost any perspective.

 

First the cost of administering the credit for companies is almost as large as the amount of the savings. Many organizations pay close to $100 per worker to administer the accounts. If a person puts $1000 a year into the account and is in the 15 percent bracket, like most workers, the tax savings are $150. If a worker puts the maximum $2,500 in an account and is in the 25 percent bracket, then the savings are $625. In this case, the administrative costs are still more than 15 percent of the tax savings.

 

This of course does not count the time spent by beneficiaries dealing with their accounts. There is often considerable paper work associated with these accounts. Often companies refuse to make payments, requiring participants to spend hours going back and forth with clerical workers in order to get reimbursements.

 

Flexible spending accounts also have an absurd use it or lose it provision. Extra money in an account at the end of the year is lost to the participant. This causes many participants to stock up on items like prescription glasses or over the counter medicines in order to avoid losing their money. Much of this spending is wasteful, since these are items that are not really needed.

 

Finally the credit is very regressive, since the largest benefits go the highest income individuals. It also is small business unfriendly since the administrative costs make it uneconomical for many small businesses. This puts small businesses at a disadvantage in trying to attract workers who might care about this benefit.

 

It is remarkable that such an incredibly poorly designed tax credit survived health care reform. (This is probably explained by the fact that most of the people who worked on designing the bill benefit from it.) It leads to more economic distortions that most of the forms of protectionism that get major news attention and cause columnists and editorial writers to hyperventilate (e.g. the "buy America" provision in the stimulus). The continued existence of these accounts merit attention, since it is a major scandal.

I've tried googling to find a citation of that key piece of data, but haven't had luck beyond random message board replies.

[Harry Chappas]

I administer an FSA and it is a great benefit. I put away $2,000 and it costs the company $50 to pay an administrator the plan for the year per employee. I have an FSA card that is used like a credit card and covers all costs I have. I submit to receitps. Our plan year runs from 10/1-9/30. I increased my benefit and will be stocking up on meds come December.

 

All you have to do is go to the doctor for a wellness visit and get him/her to write you script for these and you are fine. A pain in the ass but easily done.

[Controlled Chaos]

Here's another article for you...not that I agree with it, because now I see what this is all about the big bad rich people are benefitting. The higher your tax rate the more you benefit. I can tell you I use it. My company allows you to put as much as 5,000 in there and if you have kids or are pregnant...you'll use a lot. Weekly prenatal visits, delivery charges, hospital stay charges, frequent well visits, etc. The first year with a baby the costs are outrageous and if your plan has a 'preventitive care' limit you'll hit that after the first shots and newborns are getting shots all dam year. I've never done the whole amount, and yes it sucks with the 'use it or lose it', but you kind of have to plan ahead. We mostly use it for co-pays, deductables, eye exams, dental, etc...so I don't see the OTC thing affecting us too much, but I can definitely see it affecting other people. Also, if you need some filler to get to the amount you put in, it's nice to be able to use it on Antacids, Allergy & sinus medication, Pain relievers/aspirin, Cough & cold medications, Ointments & creams for joint pain...etc. I don't see any reason to get rid of it except more tax money.

 

The 3 things this lady lists as being wrong are not really a problem for me. The 4th, is the same tired point your liberal blog makes, evil rich people benefit.

1) The paperwork. Yes you have to fill out a form and fax it in. So what...if you're saving $56 bucks on $200, it's worth it.

2)The time it wastes. Once again..yes you have to fill out a form oh and she throws in the time to deposit the check you get back.. Huge inconvenience there.

3) Money gets wasted cause people forget about it. Well that's on the people themselves. This is a way for you to keep somne of the money you earned...if you're using the plan...pay attention to it.

4) The fairness issue. Only certain kinds of employers offer flex spending programs at all. Some 85 percent of large companies have the benefit; estimates are harder to find for smaller companies and small businesses. Certain employees, such as office workers, are more likely to have the time to file the paperwork at their workplace. And people with the highest incomes benefit the most from this program, since they face the highest tax rates.

Edited October 27, 2010 by Controlled Chaos

[jasonxctf]

i'll be the first to admit that I know zero about FlexSpending.

 

But thinking out loud, if this is correct, isn't the reduction of this credit virtually worthless?

 

Say you spend $40 per month (which is a ton) on over the counter medicine that isnt covered. Your after deduction federal tax rate is say 18%, Again this is after the standard deduction, child tax credits, mortgage deduction, property tax deduction, donations, student loan deduction, etc. That all-in-rate that say a program like Turbotax shows you at the end.

 

$40 x .18= $7.20 per month.

[Texsox]

IIRC the flexspending plans were put in place to help with medical costs. The threshhold for deductions has been so high that most people never reached it.

 

The paperwork has been zero for me with my plan. By using certain vendors (Walgreens, Walmart, a local medical supply company, my Doc) I have never needed to submit any documentation.

 

Spending pre tax money is always better than taxed income.

 

I wrote to my Senators, Congressman, and the White House. I'll share any responses. It will be from 2 ®s and 2 (D)s

 

Finally, it's the slippery slope argument.

[NorthSideSox72]

We tried this for this year, and won't be doing it again. Its a huge pain in the ass that consumes significant time to deal with, the use it or lose policy makes no sense, and all that for relatively minimal savings that is wiped out in terms of time spent. Not worth it, IMO.

 

That said, the much easier thing to do here, is to get rid of it entirely... take out the high bar for deductions, take it all the way to zero... and then give a choice - you an deduct the expenses at tax time if you do deductions, or you can take a flat deduction that represents the average medical costs for your income bracket. That way, you only have to deal with the B.S. once a year, you remove the silly use it or lose it rule, and you cut out the wasteful spending.

 

[NorthSideSox72]

Actually, there is another alternative here. You can do relatively simple things to the existing FSA rules, and make it way, way better...

 

1. That thing that specific vendors do to not require receipts, is simply the way that they submit data to the card company (in this case, the FSA credit card, which is really like a debit card of any other kind). You can require all medical providers to do this. This is very simple thing to do - it literally could just be a one-time process where you register as a medical provider (which they already would have anyway) with the state, they email you a magic code once a month that says you are verified, and you send the code up with the debit card transaction. This is all Walgreens does anyway, its virtually no cost to the provider, and it makes millions of people's lives easier (including the medical providers, who can provide far fewer paper receipts and field fewer phone calls by doing this).

 

2. Make the debit cards reloadable all the time, instead of this silly once a year election. For most large employers (the ones who even have FSA), you can already go into a website and change your deduction amounts. So, just allow the deductions for FSA to vary, and the money goes over whenever it changes. No sweat.

 

Do these two things, and the program will take off.

 

[southsider2k5]

i'll be the first to admit that I know zero about FlexSpending.

 

But thinking out loud, if this is correct, isn't the reduction of this credit virtually worthless?

 

Say you spend $40 per month (which is a ton) on over the counter medicine that isnt covered. Your after deduction federal tax rate is say 18%, Again this is after the standard deduction, child tax credits, mortgage deduction, property tax deduction, donations, student loan deduction, etc. That all-in-rate that say a program like Turbotax shows you at the end.

 

$40 x .18= $7.20 per month.

 

That math isn't that simple you are actually having to factor how many dollars you would earn that when taxed would equal the $40 that you spend after taxes. That of course changes with tax brackets. For example if you were to take a simple 20% tax rate, you would actually need to earn $50 in wages, pay the $10 (or 20%) in taxes, to equal that $40 of pretax that an HSA could give you.

[Texsox]

They have taken steps in that area. If a vendor proves that 90% of their sales are in areas that are approved for FSA purchase, receipts are not required.

[Controlled Chaos]

http://www.savemyflexplan.org/index.html

[kapkomet]

The problem with HSA, HRA, etc. is the plans aren't uniform. I can tell you when I was on it, no paperwork, direct deposit back every time I had a copay, etc. SUPER easy to use.

 

 

[StrangeSox]

We tried this for this year, and won't be doing it again. Its a huge pain in the ass that consumes significant time to deal with, the use it or lose policy makes no sense, and all that for relatively minimal savings that is wiped out in terms of time spent. Not worth it, IMO.

 

That said, the much easier thing to do here, is to get rid of it entirely... take out the high bar for deductions, take it all the way to zero... and then give a choice - you an deduct the expenses at tax time if you do deductions, or you can take a flat deduction that represents the average medical costs for your income bracket. That way, you only have to deal with the B.S. once a year, you remove the silly use it or lose it rule, and you cut out the wasteful spending.

 

That terrible rule is why I don't use the program.

 

Here's an idea, simply stop taxing medicine if that's the end-result you want.

[southsider2k5]

That terrible rule is why I don't use the program.

 

Here's an idea, simply stop taxing medicine if that's the end-result you want.

 

Which kind of taxes are you talking about? I know the state of Indiana doesn't tax medicine.