I’d also like airfare, lodging, and meals at some spa/resort/detox/weight loss unit in Southern California that is ‘medically-supervised’ by a Christian Science Practitioner. Vats of SPF-30 or higher sunscreen. A year’s supply of gluten-free cookies. A trip to Hawaii (airfare/transportation/admission fee) for a medical conference related to some chronic illness I have or think I may have. Oh yes, I’d also like an electronic body scan thrown in for good measure.
These are all IRS qualified medical expenses that are supposed to be covered if I had a medical FSA (Flexible Spending Account) through my employer. My employer, along with the majority of large U.S. employers, offers the FSA. According to a recent CDC National Health Interview Survey (Jan-March, 2013), among all persons under age 65 with private insurance, 21.5% were in a family that had an FSA.
FSAs are established and ‘owned’ by employers, and employee’s contributions are taken out before taxes, thereby reducing the employee’s taxable gross income. That’s the good news, especially for high-income employees (FSAs are a highly regressive tax policy). The two significant downsides of FSAs are: 1) employees have to estimate what their likely health care expenses will be for the coming year so they know how much to put into their FSA, and 2) whatever money is left in the FSA that isn’t spent on qualifying medical care by the year’s end becomes a perverse Christmas bonus from the employee to their employer–the ‘use it or lose it’ clause. Of course, employers don’t really spell this out for employees. My employer, which is fairly transparent as employers go, states this on the insurance/benefits website: “FSA funds not used during the plan year are forfeited to the program administrator.” Sounds like a Monopoly game rule. The IRS allows ‘leftover’ FSA funds to be returned to the employee at the discretion of the employer, but I doubt many (if any) take this option. Starting this fall as part of an Obamacare provision, companies have the option of allowing a $500 roll-over of FSA funds into the next year’s accounts. Another doubtful-to-be-exercised option.
Why in the world do people choose to have medical FSAs? The only people I have ever met who actually use and like FSAs are people with children who need braces. Braces, of course, can be scheduled and payed for in full in the upcoming year. I suppose with the increase in Baby Boomers (vanity anyone?) running off to get braces these days, the American Association of Orthodontists must lobby hard to keep the FSA option. So must the national associations of the various types of physicians who perform colonoscopies, since those pesky screenings can be scheduled in advance and are quite expensive. Uwe Reinhardt, a Princeton economics professor, wrote a very funny NYT Economix blog post about the Christmas his wife scheduled him for a surprise gift of his and her colonoscopies in order to ‘spend-down’ their FSA.
Between the year-end ‘spend down’ of FSAs, and people scrambling to schedule covered medical care before the New Year that brings with it a new and usually much higher health plan deductible, trying to get needed health care this time of year is almost impossible. So all I really want for Christmas is a saner U.S. health care system. Really, is it too much to ask for?
Happy Winter Solstice and Merry Festivus to all.
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Additional (and comprehensible) resources:
- Two recent NYT articles by Ann Carrns. The Alphabet Soup of Health Spending Plans (important differences between FSAs and Health Savings Accounts/HSAs), Oct 10, 2013. and It’s Autumn, Time to Check Flexible Spending Accounts, Oct 29, 2013.
- During the colossal Affordable Care Act debate in Congress, FSAs became a fairly big issue. To remind us of that crazy time there is Ron Lieber‘s NYT article, The Fight Over Flexible Spending Accounts (Sept 25, 2009).