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WASHINGTON—A grass-roots drive is under way to convince lawmakers to repeal a health care reform law provision that will cap how much employees can contribute each year to their flexible spending accounts, but even backers say the chances of a successful repeal are slim.
Under the provision in the Patient Protection and Affordable Care Act, contributions employees can make to their FSAs will be limited to $2,500 starting in 2013. In succeeding years, the annual limit will rise in tandem with increases in the Consumer Price Index.
Prior to PPACA, there was no federal limit on employees’ annual FSA contributions. Employers, though, typically limit such contributions to $4,000 to $5,000 a year.
Nearly 20% of FSA participants contribute at least $2,500 a year to their accounts and would be affected by the cap, according to statistics compiled by benefit consultant and FSA administrator Aon Hewitt Inc. in Lincolnshire, Ill.
The change largely was revenue-driven, as lawmakers searched for ways to help fund PPACA’s core provision: providing federal health insurance premium subsidies to the lower-income uninsured.
Limiting FSA contributions will raise an estimated $13 billion in federal revenue from 2013 through 2019, according to an analysis last year by the congressional Joint Committee on Taxation. The FSA cap increases revenue because the affected employees will have higher taxable incomes.
“This strictly was a revenue-raiser, but one that will have real consequences for employees,” said Paul Dennett, senior vp-health care reform with the American Benefits Council in Washington.
The accounts have been a boon for employees to pay out-of-pocket expenses, such as prescription drug copayments and medical plan deductibles, with pretax dollars.
FSAs also have eased the financial burden for employees with chronic medical conditions, said Jody Dietel, chief compliance officer at WageWorks Inc., a San Mateo, Calif.-based FSA administrator.
In addition, FSAs have been invaluable in helping employees pay for major unexpected medical costs that occur early in a year, said Ms. Dietel, who also is executive director of Save Flexible Spending Plans, a grass-roots advocacy group sponsored by the Employers Council on Flexible Compensation, a Washington-based trade group.
That’s because the full amount an employee agreed to contribute to a FSA during a year would be available immediately to pay an uncovered health care expense even though the employee had not yet made the contributions, Ms. Dietel said.
In an effort to convince lawmakers to repeal the $2,500 contribution cap, FSA advocates are trying to dispel notions that the accounts are little more than tax shelters for the well-to-do.
According to Save Flexible Spending Plans, FSAs are used largely by the working middle class, with the average FSA participant earning $55,000 annually.
“We are trying to preserve the accounts for working families,” Ms. Dietel said.
While lawmakers might be sympathetic to that issue, their willingness to repeal the $2,500 FSA cap is another matter.
“Any attempt to repeal a provision that costs revenue is far from a slam dunk,” said Amy Bergner, a partner with consultant Mercer L.L.C. in Washington.
“In this era of fiscal restraint, a repeal of the FSA cap would clearly be an uphill battle,” said Gretchen Young, senior vp-health policy with the ERISA Industry Committee in Washington.
Ms. Dietel said she doubts lawmakers will make a sound policy decision and repeal the cap.
“It is a tough fight because of the political and economic climate,” she said.