Impending FSA Change Rules by IRS Creates Interesting Contradictions in Logic

--By Anna Shepherd, Health & Personal Finance Professional
The government recently published new rules, effective at 2010 year’s end, that change what an FSA (Flex Spending Account) covers at the local pharmacy. They will no longer be permitted to cover over-the-counter medications such as pain relievers or cold medicine. My focus is on an article that involves the coverage of breast pumps and the bigger picture.

The NY Times article (see Link below) explains a strange irony in US tax law that allows acne treatment to be paid for by a pre-tax FSA or HSA, but will not allow breast pumps to be covered. Personally, I don’t understand why it makes fiscal sense to make it MORE difficult to self-fund health care expenses especially in this climate. And why would something so natural and so relevant to health care be explicitly excluded? http://www.nytimes.com/2010/10/27/business/27breast.html?src=busln

Well, I did some research and the best answer I found? Taxes. It can cost upwards of $500 for a pump and accessories and it appears that the IRS is worried about abuse which will reduce tax yield. Furthermore, the people that save the most are the ones in the higher tax brackets, aka the “wealthy”. That’s all, the bottom line.

Now, to avoid going into a rant about the inherent absurdity of letting the IRS decide that something mothers have done for millennia is “not medically necessary”, though I would really love to, I’m going to talk about the greater implications of this story.

To get around this inconvenience and still be able to purchase the soon-to-be excluded items, all you need is a doctor’s note. Not too hard, right? But why does it make sense to make someone have to make, and more importantly pay for, a doctor’s appointment to get an official doctor’s note to save money on aspirin, cough medicine, breast pumps and the like? You know you need these things to stay healthy; a doctor didn’t have to tell you that. Why would you force someone to enter into the system and jump through an extra hoop to get some very basic medical supplies? It is, plain and simple, a waste of time for all involved.

More importantly, I think the biggest implication in these new rules is what it means for the future of FSAs and similar plans. When health care costs per person are increasing at unsustainable rates, why wouldn’t you want to help people, any proportion of society really, help themselves? These accounts make sense! They make health purchases a reality connected to your own bank account rather than some abstract insurer. They force you to plan ahead and think about what is important in your health. BUT, as the Times article said, FSAs are slated to cost the government $68b (in tax revenues) in the next decade. And as I stated before, they are most beneficial to the higher earners. You do the math. I feel like this might just be the beginning.
   
PS: http://technorati.com/women/article/irs-refuse-tax-break-on-breast/
I couldn’t resist mentioning this: As this blog on Technorati indicates, the IRS deems baby formula a “necessary expense” for mothers on the WIC program (a USDA nutrition program for Women, Infants and Children). The government spent over $200m in 2009 to subsidize it. Irritating anomaly, no?