Bill caps flexible spending account contributions

Federal employees with costly chronic health conditions could see out-of-pocket expenses increase if flexible spending account contribution limits remain part of health care reform.

Health care reform legislation under debate in the Senate caps FSAs at $2,500 beginning in 2011. The House version of the bill, approved on Nov. 7, sets the same limit, but the provision would not take effect until 2013. While there is no across-the-board legal cap, federal employees currently are limited to $5,000 in pretax FSA contributions.

"[The caps] are going to hit those who need it the most," said Jody Dietel, executive director of Save Flexible Spending Plans, an advocacy group lobbying Congress to protect FSAs, and chief compliance officer for WageWorks Inc., which helps manage the accounts. "People who make higher elections generally are those with chronic conditions."

Lower limits will affect a very specific population, such as patients who need extended psychiatric counseling with an out-of-network provider, or people whose insurance plans limit occupational or physical therapy visits, said Walton Francis, author of the Consumers' Checkbook 2010 Guide to Health Plans for Federal Employees.

"There's only a very small percentage of people in the federal employee system who are going to find that a hit," said Francis, adding that few people need more than $1,000 for planned medical expenses such as co-payments.

In general, federal employees believe FSAs are an extremely important benefit and are careful with their contributions, said Chris Ryan, chief strategy officer for SHPS Inc., a company that manages client accounts. Between 20 percent and 35 percent of federal workers with FSAs currently would allocate more than the $2,500 cap, he said.

Dietel said a major concern is the Senate's provision doesn't index for inflation, which would devalue the accounts significantly over time. The legislation also places a 40 percent tax on employers on plans valued at more than $8,500 for an individual and $23,000 for a family, beginning in 2013. FSA contributions would be included in that total.

In 2010, federal employees should take care of any significant planned expenses that have been put off, such as orthodontics, while the $5,000 limit is still in place, said Dietel.

There are three types of flexible spending accounts available to federal employees: a health care flexible spending account, a limited expense health care flexible spending account, and a dependent care flexible spending account. Approximately 280,000 federal employees take advantage of the health care FSAs, which represents roughly $550 million in contributions, according to Ryan.