What Will Happen to Flexible Spending Accounts Under Healthcare Reform?

Flexible spending accounts truly live up to their name

. They have allowed people to set aside money before taxes, in order to spend it on approved medical expenses. In most cases, employers directly deposit a certain percentage of an employee's salary into their FSA account. It could then be spent on doctor's visits, prescription drugs, or over-the-counter medications.

These FSAs are sometimes offered as a supplement to a PPO (preferred provider organization) health insurance plan, although they are often paired with high-deductible health coverage. An increasing percentage of companies have transferred more responsibility towards their employees by doing the latter; the ability to make more decisions about their health care decisions comes with a price--for example, paying the full cost of a hospital stay or doctor's appointment instead of a co-insurance percentage or fixed co-payment (although the ability to use pre-tax income somewhat makes up for it).

Such plans have their appeal, especially for the young and healthy. Monthly premiums are generally lower. However, many of those with pre-existing conditions may find FSA plans more trouble than they are worth. They are a great option, but not right for everyone. That is why this year's healthcare reform legislation wants to make sure that seemingly bare-bones plans that cut costs for employers are not the only option available to most Americans.

Unfortunately, budget concerns made Congress look towards ways to keep the price tag of the Affordable Care Act under the dreaded $1 trillion mark. One method is to generate more tax revenue by limiting the exceptions for flexible spending accounts. The annual maximum that can be deposited into such accounts will also be lowered, to $2,500 from $5,000.

Beginning on January 1st, FSA health insurance plans will no longer be able to cover non-prescription medications purchased without a prescription. Commonly purchases remedies--such as allergy medications, cold and flu medications, and pain relievers can no longer be bought with flexible spending account balances. However, there is an exception to the new rule: if a doctor recommends an over-the-counter medication, it can be paid for with an FSA account if he or she writes a prescription for it. This has the side effect of forcing people to make a doctor's appointment for tax-exempt purchasing of such drugs--which may be good for preventative care and future health (because the doctor can detect other, more serious, medical conditions before they spread), but leads to the inconvenience of time and money spent on the visit.

What Will Happen to Flexible Spending Accounts Under Healthcare Reform?

By: Yamileth Medina

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