Key Vote on Flexible Spending Accounts

May 12, 2004

TO MEMBERS OF THE U.S. HOUSE OF REPRESENTATIVES:

The U.S. Chamber of Commerce, the world's largest business federation representing more than three million employers of every size, sector and region, urges your support for H.R. 4279, which would make much needed changes to workplace health care Flexible Spending Accounts (FSAs). This bill would allow account holders to roll over up to $500 to the next year's FSA or to a Health Savings Account (HSA).

This long-sought change will benefit millions of workers with Section 125 cafeteria plans by helping them with out-of-pocket health care expenses such as doctor's office visits and prescription drug co-payments, health plan deductibles, self-pay items such as contact lenses and even over-the-counter medications. In 2002, 21% of employers with 10 or more employees offered a health care FSA, and 34% of eligible employees participated in these plans, with an average annual contribution of $1,292. As contributions are exempt not only from income taxes but also from FICA and HI payroll taxes, employers realize tax savings when employees fully participate in these plans as well.

The current participation rate is far too low and is hampered by the current "use it or lose it" rule that H.R. 4279 would modify. This rule also has several ill effects on patient-consumer behavior. Employees who find themselves with unspent balances as they approach the end of the plan year often embark on a spending spree for health care goods and services that they may not need, just to avoid forfeiting their hard-earned money. Furthermore, other employees budget too conservatively for their out-of-pocket expenses and end up paying more for those same costs than if they had paid them on a pretax basis through an FSA.

FSAs will continue to be part of the mix of employee benefits even as HSAs are adopted. For those without an HSA, a major advantage of health care FSAs is that workers may access at the start of the year their entire annual budgeted amount and then repay the funds with each paycheck. This feature is particularly valuable for those with more modest incomes as they will not have to break the family budget in order to meet a deductible at the start of the year.

As employee cost-sharing for health care expenses necessarily increase to keep premiums affordable, better use and management of FSAs becomes more important. We urge your support for H.R. 4279, and will consider including votes on or related to this measure for inclusion in our annual "How They Voted" rankings.

Sincerely,

R. Bruce Josten
Executive Vice President, Government Affairs
U.S. Chamber of Commerce