Senate Finance Committee Seeking to End Tax Deductions for Health Insurance, FSAs, HRAs and Limiting HSAs

Urgent Memo=Call To Action

From: Ric Joyner, CEO of

Re: Senate Finance Committee Suggestions on Financing Health Care

Date: 5-21-09

Dear Participant, Employer and Broker,

The Senate Finance Committee has issued its suggestions for financing the new health care program designed to fix the uninsured in the country. We applaud the Senator’s actions to find answers to insure the uninsured. We disagree on their choice to fund this new health care program because of the unintended consequences. As the Senate Finance Committee searched for ideas on how to pay for the new government entitlement plan, they chose several tax advantage programs to target. Let’s review those programs.

Currently, employers are offered a tax credit for offering health insurance to employees, and most Americans that are employed are covered by this tax break. However, the Senate has decided to “cap” or restrict the tax credit. What does this mean? The potential is that employers will get less of a tax break or none at all for providing employee benefits. How does that impact my family? How will impact the country? The Senate is attempting to fix health care by removing or capping the tax credit for employers and eliminating FSAs, HRAs, and HSAs which in turn could increase the uninsured by millions! Employers will be forced to cut back or eliminate employee benefits, such as health insurance, FSAs, HRAs and HSAs! At eflexgroup we pay 80% of the cost of health insurance for employees. If there is a cap on the tax credit we will be forced to reduce the amount we pay which increase the strain on our employees. Many could drop coverage or be forced to pick up their own, and face underwriting! Think about how this could affect your family?

The financing suggestions include the elimination of Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs) and severely limiting Health Savings Accounts! How does this affect eflexgroup? Our 80 employees would lose their jobs! Your family would be affected because your family lost the pre-tax benefits of paying for out-of-pocket medical expenses, daycare, and health insurance! Thus the health insurance costs employees become exacerbated because the employer is forced to increase the costs to the employee because of the reduction or elimination of the health insurance credit AND they lose the pre-tax savings on health expenses, insurance premiums, child care etc. To fix roughly 15% of the population that does not have health insurance, the Senate is going to break the 85% that do have insurance and affect the 48,000,000 employees who use FSAs, HRAs and HSAs! Regardless, of you political philosophy you need to speak up and tell your representative that you don’t want to lose your health insurance, your job (becoming uninsured yourself), and the tax savings (discounts) on medical expenses to fund someone else’s health care.

The following are excerpts from the Senate Finance Report.

Exploring current health care tax expenditures— The policy options explore several options for modifying the current tax treatment of health‐related expenses to eliminate inconsistencies and discourage wasteful health care spending.

Exclusion for Employer‐Provided Health Insurance‐‐Under current law, employer‐provided health insurance is not counted as income for tax purposes and the amount of health care benefits that are counted as tax free is unlimited. This tax‐free status encourages employers to offer “Cadillac plans,” or overly generous health care plans that promote the overuse of health care services and drive up health care costs. Moreover, the plans are subsidized by taxpayers as a result of being tax free. The policy options explore five changes to make the exclusion more equitable and efficient. These options include capping the exclusion based on the value of health insurance policy or the income level of the employee eligible for the exclusion. A third option would be to cap the exclusion based on both the value of the health insurance policy and income level. Another option would be to convert the employer‐provided health insurance exclusion to an individual tax deduction or credit. The options also consider whether to grandfather in existing plans so that benefits provided under existing collective bargaining agreements are not limited.

Modify Health Savings Accounts (HSAs) – Individuals enrolled in high‐deductible health insurance plans can set up Health Savings Accounts (HSAs) to withdraw from for qualified medical expenses without paying taxes. Likewise, contributions made to HSAs by individuals and employers are not considered income for tax purposes and earnings on HSAs accumulate tax free as the balances rollover from year to year. The policy options explore three ways to modify HSAs. The first option would restrict HSA contributions to the lesser of the individual’s deductible or the statutory limit. The second option would increase the penalty for withdrawing from an HSA for non‐medical expenses from 10 percent to 20 percent. The third option would require certification from the employer or from an independent third party that HSA withdrawals were made for medical expenses.

Modify or Eliminate Flexible Spending Accounts (FSAs) – Similar to HSAs, FSAs allow individuals and their employers to contribute an unlimited amount of tax free income to a Flexible Spending Account. Employees can withdraw from their FSA to pay out‐of‐pocket medical expenses besides premiums. But unlike HSAs, FSAs do not roll over from year to year and operate on a “use‐it‐or‐lose‐it” principle. The policy options explore limiting the amount that can be contributed to an FSA or eliminating FSAs altogether.

Standardize the Definition of Qualified Medical ExpensesUnder current law there is no standard definition for what qualifies as a medical expense for HSAs, FSAs, or itemized medical expense tax deductions. The policy option would apply a standard definition of qualified medical expenses across the board.

Modify the Itemized Deduction for Medical Expenses‐‐Under current law; a taxpayer that itemizes deductions may take a deduction for medical expenses – including insurance premiums and out of pocket medical costs – in excess of seven and a half percent of adjusted gross income. According to the Congressional Research Service, only six percent of all tax returns take the medical expense deduction. The policy options examine elimination the itemized deduction for medical expenses or raising the seven and a half percent floor for claiming deductions. Senate Finance May 18, 2009

Please note that these are only Senate Finance Committee ideas and they are seeking your input. You have until May 26th, to make comments to:

The next steps to move this massive taxation and attack on employers and employees are:

The Senate is drafting a bill using these ideas to fund health care plans (Finished by mid-June). Once this bill is drafted it will be debated in the Senate, and they will have a pass or fail vote (early July). Next, the House of Representatives begins creating their own version of the health care bill, will take into consideration the Senate’s version (mid-June to mid July). If the House passes the bill it is then sent to a “conference committee” made up of Senate and House members responsible to negotiate compromises (late July early August). After the conference committee is finished the House and Senate vote on the finished bill. The finished bill is passed to the President for signing (mid-August). During this time of debate and drafting, it is important we make our voices heard. If we don’t take this opportunity the Senate will assume no one cares about their move to create massive taxation, and will take our silence as a sign to move forward.

What can you do? Call and write your representative. They appreciate hearing from you. You are a voter. Tell them your family is going to be affected by these changes, and you have the right and privilege to make your thoughts known. There is very little time to make your voice heard.

First, deadline is the May 26th for the Senate Finance Committee.

Please contact the staffers who will pass on your comments:

Erin Shields (Baucus)

Jill Gerber (Grassley)

(202) 224‐4515

Second, step is to write your Senator or Congressman through the following links.

Third, is to find out the local and national offices of your representative. Pick up the phone, call and let them know your thoughts. Inform the staffer you live in their district, you are a voter and that your family will be affected by the Senate’s decision.

Fourth, create a personal handwritten fax or letter and send to their offices in DC and local. Tell your own story.

Finally, write a letter to the editor of the newspapers and tell your story. Did you know that the letters to the editor of newspapers are one of the most popular columns and read by Representatives?

Thanking you in advance for speaking out! Our employees and my family thank you for helping to save this wonderful tax savings benefit that helps us afford healthcare expenses!