The Senate Finance Committee version of the healthcare bill has a hidden provision that will hurt every tax paying American. It’s the Democratic version of “robbing Peter to pay Paul.” The Senate bill would reduce the limit on Health Flexible Spending Accounts (HFSA) from the current limit of $11,000 per family to $2,500 per family.
An HFSA is important because it allows tax deductions for out of pocket medical costs such as deductibles and co-payments. This is a tax advantage claimed by many rank and file employees, particularly those who do not itemize deductions. For example, assume an employee earns $50,000 and elects an HFSA contribution of $10,000. The employee funds the $10,000 with pre-tax dollars so that they pay taxes on only $40,000 of income. With the Democratic version of the HFSA, the employee would still have $10,000 of medical expenses but with a tax deduction of only $2,500, so their income would be much higher under the proposed bill.
Those who itemized deductions will still lose under this proposed bill. If the HFSA limit is lowered, then that will shift medical expenses from “off the top earned income” to potentially non-deductible or limited itemized medical deductions.
The Democrats claim that they want to reduce healthcare costs to help the middle class; yet, by implementing this provision they will be the very ones hurt. For example, a single mother who pays taxes counts on the HFSA to reduce her financial burden since many children need braces, eye glasses, and doctors visits. The lower to middle class is being squeezed on one hand by increased deductible and co-payments while at the same time being forced to fund healthcare reform with their hard earned wages.
11 responses so far
1 teabag // Nov 9, 2009 at 3:19 pm
Makes a change from giving huge tax cuts to the top 1%. At least they will get something for the money. The top 1% just stuck it in their offshore tax havens.
2 rbottoms // Nov 9, 2009 at 3:59 pm
And this is who they plan to send after the Democratic Party as the champion against things like health care reform? Good luck with that.
Polite people might call it odd or a little paranoid. The rest of us call it nuts.
3 rbottoms // Nov 9, 2009 at 4:46 pm
P.S. The design changes were approved in 2005 by the Bush administration.
Har. And double Har.
4 jreb // Nov 9, 2009 at 6:12 pm
Silly me.. I thought the topic was the Health Care Reform Bill proposed by Dem Senators, which has nothing to do with reform, but instead Gov’t control of the health care industry.
5 Dianne // Nov 9, 2009 at 8:47 pm
Nicely explained, good solid points, but that just proves my newly-formed thesis one more time: The Democrats in the House of Representatives have the same insidious agenda as the new president. Yep, I’m saying it outloud (in print) that this “reform” of the health care system in the U.S. is nothing but a power grab by these Marxist traitors. Some of the Reps are too stupid to understand what’s going on, but the ones who do know and don’t agree with the plan are too scared to buck the new Commander-in-Chief and his Mouseketeers. They have every reason to be fearful. Chicago “thugery” got a bad name for a very good reason.
6 david.callahan // Nov 9, 2009 at 10:33 pm
This post would be more compelling with data indicating how many people are impacted broken down by income range. It seems just conjecture without that.
7 teabag // Nov 10, 2009 at 8:17 am
Dianne.
Redstate is missing it’s village idiot.
8 ottovbvs // Nov 10, 2009 at 8:59 am
“This is a tax advantage claimed by many rank and file employees,”
……..very few middle class people with incomes of around $50k have HFSA’s…….the only people I’ve ever come across with these sort of plans are people with family incomes of over $200k plus.
9 ottovbvs // Nov 10, 2009 at 9:02 am
david.callahan // Nov 9, 2009 at 10:33 pm
“This post would be more compelling with data indicating how many people are impacted broken down by income range. It seems just conjecture without that.”
…….Apropos my comment above I’m going to bet it limited to people with high incomes, but this sort of sleight of hand is common amongst opponents or reform…….those earning $250 a year become rank and filers!
10 Kanzeon // Nov 10, 2009 at 6:47 pm
Man, I don’t get this.
I thought these accounts were for covering deductibles, so that people could buy catastrophic plans more efficiently.
Why would the average middle class family accumulate $10,000 in the account? Presumably they would have to pay their normal deductible and co pays every year anyway, so they would have an outlay directly to providers – if they had a $1500 deductible, then they would pay $1500 every year. For some reason, then, they would put another $10,000 in an account to get the tax break…why?
The only way it makes any sense at all is (1) that someone has a $10,000 deductible, and is saving for that rainy day or (2) someone is using this because they could use another deduction. I would think that many people could benefit from a modest savings account to park their deductible every year – for most people that’s going to be $1000 or $1500, not $10,000.
Please, Elise, tell me how this hurts the average middle class person? I’m mystified.
11 Kanzeon // Nov 12, 2009 at 1:56 am
OK, I’m even more mystified, as I look further into this:
“One major drawback is that the money must be spent within the coverage period as defined by the benefits cafeteria plan coverage definition. This coverage period is usually defined as the period that you are covered under the cafeteria plan during the “plan year”. The “plan year” is commonly defined as the calendar year.”
http://en.wikipedia.org/wiki/Flexible_spending_account
These aren’t for high deductible plans, as I had thought. Those are health savings accounts:
http://en.wikipedia.org/wiki/Health_savings_account
Strangely, those contribution limits are around $6,000 per year.
WHY would anyone accumulate $11,000 in one of these plans? You need $11,000 of uncovered expenses in one year, or the benefit forfeits to the company. It has to be a cafeteria plan set up by the company.
Having looked at this, I have no idea how many taxpayers are affected: how many employees are under cafeteria plans, for example. I don’t know how the employee would benefit from $11,000 being put in the account, since they can’t spend it in the plan year.
Elise, do YOU understand this? Do you CARE to understand this? Do you BEGIN to COMPREHEND why anyone with a moderately functioning frontal cortex gets incredibly frustrated with the Republican party in its present from, when people write headlines like yours and then are unable to comprehend how the headline fits the article in any real world sense?
Ok, I dug a little deeper. Here are the facts:
About 12% of the labor force have access to FSAs. “Most” employers limit the contribution to $3000. Source:
http://www.chpa-info.org/pressroom/FSAs_FactsFigures.aspx
That means, less than 6% have an option to put more than $3000 in. There isn’t any logical reason to have a number like $11,000 in these accounts. The Congress probably just eliminated a fantasy number.
Do you care, Elise, if anything you say makes sense? Are you a complete nihilist? Are you beyond embarrassment?
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