The House has voted to repeal the limitation on over-the-counter drugs paid for from an FSA or HSA (health savings account) and to allow up to $500 of unused funds in an FSA to be returned to the individual.
This tax change for OTC drugs was enacted as part of the Patient Protection and Affordable Care Act (PPACA) in 2010. A new Congressional Budget Office (CBO) revenue score estimates the cost of this change at approximately $4 billion over ten years.
The other change would allow participants to cash out up to $500 of any remaining FSA balances at the end of the FSA plan year (including any grace period allowed by the plan), with those funds treated as ordinary, taxable wages. A new CBO revenue score estimates the cost at approximately $4 billion over ten years. This cost calculation assumes an increase in use of the FSA because with the ability to receive up to $500 back if not used for medical expenses in a year, the FSA is more user friendly. This assumption is questionable in my view. The amount of money lost under the current use it or lose it rule is small per person and I don’t see this provision doing much to bolster participation which has hovered in the 25 to 30% range for many years.
Even though these changes benefit middle class Americans, especially as they face higher deductibles and out of pocket costs within employer health benefit plans, they are opposed by most Democrats and the President because as currently structured they help pay for Obamacare (as a hidden new tax on working Americans). The President has said he will veto the changes if they pass the full Congress.
Don’t hold your breath waiting to benefit from these changes. On the other hand, the proposed legislation also repeals a new tax on medical device makers and that change is favored by several Democratic senators.
What a way to manage a health care system.
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