Some who have taken issue with health care reform on Capitol Hill argue that such comprehensive changes could have unintended consequences.
That’s one of the concerns of Robert Patricelli, chairman and CEO of Avon-based Evolution Benefits. His company, which has been in business since 2002, offers prepaid benefits cards for people to use with their flexible-spending accounts, health-savings accounts, and health-reimbursement arrangements.
Patricelli’s company has been recognized nationally for its innovative product, which allows customers to simply swipe a credit card that automatically deducts funds from their benefits account.
But Patricelli is worried his business could be hurt by legislation under consideration in the U.S. Senate that would place restrictions on flexible spending accounts.
Such accounts allow employees to set aside a portion of their paychecks to pay for health care expenses that insurance doesn’t cover. Money that is put into the account is not subject to payroll taxes, which creates a substantial savings for people who use them.
In Connecticut, about 430,000 people use the tax-advantaged accounts, Patricelli said.
Currently, there is no legal limit on how much people can set aside each year, but employers typically set a cap around $4,000 or $5,000.
But Patricelli said health care proposals pending in the Senate would impose a new $2,500 cap on FSA contributions and potentially subject the accounts to an excise tax by lumping the benefit together with high-cost insurance plans.
The legislation could also limit the use of FSAs for over-the-counter medications by forcing participants to get a prescription for everyday items such as allergy medicine.
Patricelli said the changes would likely cause many employers to reconsider offering FSAs altogether.
“FSAs would be seriously limited under these provisions,” Patricelli said. “They would effectively kill the program, maybe not right away but over time.”
Some argue that FSAs encourage unnecessary health care spending because the money that people put into the account must be used within a year or else it’s returned to the employer. That in turn makes some people spend money at the last minute simply so they can use up their funds.
Patricelli said that rule should be changed to allow account holders to take back any unused savings.
Patricelli’s case provides an interesting view into just how complicated comprehensive health care reform can be, and how businesses outside insurance companies can be impacted by it.
What Patricelli says frustrates him the most is that the Senate isn’t putting restrictions on FSAs for policy reasons.
Rather, it is to raise money to pay for the rest of the heath care reform.
It’s estimated that the cap will allow the government to take in an extra $14.6 billion from 2011 and 2019.
Patricelli said those who stand to lose the most with the restrictions are individuals and families coping with chronic conditions who set aside the maximum allowed by their employer each year for out-of-pocket expenses not covered by their insurance.
For example, diabetics rely on FSAs to pay for testing strips and maintenance medications.
Patricelli, and many other industry insiders, says the proposed cap is also a tax increase on the middle class. That’s because if people aren’t allowed to put as much money aside in the tax-advantaged accounts, they’ll pay more in income and payroll taxes.
“Capping FSAs is a tax increase on middle income people who are sick,” said Patricelli, who added that the average person with a FSA typically earns about $55,000 a year. “The average person with chronic illness spends $4,400 on costs. Capping it at $2,500 is a tax increase on the sickest of people.”
To make sure his concerns have been heard, Patricelli has gone to Washington, D.C. about a dozen times to lobby for his cause.
Greg Bordonaro is a Hartford Business Journal staff writer.
