Health | Oregon | Vital Signs

New Rules Lower Flexible Spending Account Contributions

OPB | June 3, 2012 11 p.m. | Updated: June 7, 2013 10:23 a.m. | Portland, OR

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Oregonians lucky enough to have a job, may also have the option of a flexible spending account at work. 

It’s a financial agreement that allows employers to give staff a way to reduce their taxes.

But federal health care reform is about to limit the accounts. As part of our ongoing healthcare series “Vital Signs,”  Kristian Foden-Vencil reports  that this could mean a financial hit for some people.

 

Flexible Spending Accounts are an easy way for companies to help staff pay for health expenses — and get a tax break.

Essentially, at the beginning of each financial year, you choose how much you want to put aside — before taxes — for health care.  The money is taken out of your pay check every month.

Kristian Foden-Vencil / OPB
Jeffrey Kaye

Most companies then put a lump sum on a debit card, which you can use to pay for doctor visits, a surgery or a dental procedure.

At the Oregon Convention Center recently Jeffrey Kaye, the chief technology officer of Evosus Solutions, manned a booth.

He advises the 13 employees at the company on their Flexible Spending Accounts or  FSAs.

Editor’s Note

In an earlier version of this story, OPB erroneously reported that the federal government limits the amount employees are allowed to put into the accounts. However, there is no government-imposed limit, although employers are allowed to set a limit for their employees.

“For our company. I highly recommend. It’s like leaving money on the table. The tax deduction that’s built into the FSA is pretty big, especially if you know that you’ve got medical expenses and most people do.”

Last year, Kaye was rear-ended in a car accident. He suffers from a bad back. He was planning to put extra money aside for massages and chiropractic visits.

“The FSA has enabled us to use those types of care that otherwise would be out of reach for us. And that’s where I get extraordinarily frustrated. We would definitely go the full $5,000 next year if we could, just to cover massage and chiropractic, because we do see a great benefit to that.” 

But starting January 1st, no more than $2,500 in contributions to an FSA will be tax deductible.

An employee in the 35 percent tax bracket for example, who puts aside $5,000 in a flexible savings account can save $2,700 in taxes a year.

That’s according to Jody Dietel, the chief compliance officer of a company called ‘Wage Works.” The company oversees these kinds of health benefits for other employers.

Dietel says the new limit means the employee in the 35 percent tax bracket will have to pay another $1,350 in taxes.

“So the reality is, this is a fairly big hit for a family with chronic illnesses, special needs kids, who have the medical expenses. So if they have $5000 in medical expenses, suddenly they’re going to have to either earn and extra $1,350 to pay for those same medical expenses or certainly have less disposable income.So it is a big change.”

It’s a big change for people who have flexible spending accounts.

But that’s a big proviso — says Paul Van de Water of the Center on Budget and Policy Priorities in Washington, D.C.. The center’s a think that works on fiscal issues that affect low- and moderate-income families.

Van de Water says only one person is seven actually has an account. And the average amount they put into it is about $1,500 — so he says, the vast majority of people aren’t going to be affected by the new limit.

He says there’s also a good reason for the tax increase. It’s supposed to generate $18 billion to help pay for 30 million Americans to get health care coverage under the federal Affordable Care Act.

“What I think is important for folks to remember is that it affects relatively few people. And also this is part of an effort to rebalance the way the federal government provides assistance to people for health coverage.”

He says the tax increase is also a little easier to swallow if you know there’ll be other tax increases on health insurance companies, pharmaceutical businesses and manufacturers of medical devices.

Tom Gronke

Kristian Foden-Vencil / OPB

“The rational for all of those additional taxes is that companies that service the health care sector are going to have more business because more people are going to have more health care coverage.”

Tom Gronke is a network analyst for a communications company. He sits at a bank of computers at his Portland home in a small basement room.

“It’s a boring job, but it pays the rent.”

He has a Health Savings Account, instead of a Flexible Spending Account. The benefit is that if he doesn’t spend all the money in his account by the end of the year, it’ll roll-over into next year.

If that happens with a Flexible Spending Account the money is forfeited.

Anyway, his taxes are also going to increase as a result of the Affordable Care Act, but he is still in favor of the overhaul.

“There’s no way I could have a cheap health care plan that’s really easy to work with and just sort of be able to ignore the fact that there’s a lot of people who aren’t insured. I’m going to pay for it one way or the other. I just wish it wasn’t so dam complicated.”

Meanwhile, the nation is waiting for the U.S. Supreme Court to weigh in on the Affordable Care Act.

 

This story is part of a reporting partnership between OPB, NPR and Kaiser Health News.

Sources came to us via our Public Insight Network. Learn how you can become a source and share what you know at opb.org/publicinsight


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