By Amit Ahluwalia, Vice President Business Development, Wageworks
It’s impossible to predict the future of health care reform. At press time, the House and the Senate bills covered the health care issues of health insurance and flexible benefits like health reimbursement arrangements (HRAs,) health flexible spending accounts (FSAs) and Health Savings Accounts (HSAs). But until a consolidated bill is designed, the outcome of health care reform may not be known for months to come. However, it is possible to look at the facts and make smart decisions now.
One proposed change in these bills is a cap on the health care FSA. The goal is to limit health FSAs to $2,500 for a plan year. That change will affect one in five participants who are in plans right now. There are over 35,000,000 Americans with an average income of $55,000 benefiting from FSAs. Typically, participants who have a chronic disease set aside about $4,400. By eliminating a portion of their tax savings, this proposal would hurt those that need it the most.
Another proposed change is disallowing the over-the-counter (OTC) drugs and medications as eligible expenses. OTC drugs and medicines not only save significant dollars for the health care system and individual, but the ability to use. Flexible spending accounts to pay for eligible over-the-counter medications. Tax savings can total 25%-40% on every item purchased. Eliminating this benefit is an immediate tax hike for every participant and can add hundreds of dollars in extra expenses to an already stretched budget.
And speaking of budgets, this is an enormous benefit of FSAs. It’s not all about the tax savings. Participants in health care accounts literally bank on the fact that health FSA dollars are available to them before all the money has been taken out their paychecks. Their annual election is available for emergencies when needed and in return they have predictable payroll deductions.
Focus On the Here and Now
With all the talk of reform very little has been said about when these changes are expected to take place. Some changes may take places as early as 2011 and some may not take place until 2013. The message here is to take advantage of the tax savings available now.
Unfortunately, many employers are adopting a wait-and-see approach and risk losing out on tax savings for themselves and their employees now and in the years ahead. It’s important to optimize your plans and take advantage of available tax breaks and plan design options now.
Even if you have a health FSA now, utilization may be low. Help employees better manage their health care dollars. Educate employees to boost participation and savings for you and your employees.
Changes for the Here and Now
- Ensure that employee premiums are being paid with pre-tax dollars
- Maximize savings for you and your employees by raising the health care limit in the Section 125 health care flexible spending account
- Provide flex benefit debit cards for convenience and security
Fight for the Future of Flexible Spending Accounts
Funding health care reform by taking away a valuable benefit for working Americans just doesn’t make sense. It hits every participant with a tax hike and affects those with chronic conditions hardest—those who need it most. Now is the time to arm yourself with the facts and let Congress know how devastating the elimination or restriction of flexible benefits would be to you and your employees.
To protect the future of consumer-directed health care, contact your members of Congress. Go to: www.savemyflexplan.org and call or e-mail your representative and senators.
Amit Ahluwalia is vice president of business development at WageWorks (formerly MHM Resources). Amit’s responsibilities include building national distribution platforms around administrative solutions for flex plans. Under his leadership, the company has expanded its reputation as an end-to-end provider of consumer-driven flex plan service and technology solutions. Contact Amit at 877-887-1080 or amit.ahluwalia[at]wageworks.com.