TEXT OF STORY
TESS VIGELAND: Cleveland is home to one of the nation’s preeminent medical facilities. And recently it’s become a common reference in the debate over healthcare reform. The Cleveland Clinic is known nationwide for providing high-quality healthcare at a lower cost than many of its peers. This week executives from the clinic and several other medical groups were in Washington to talk about reform. Their visit came at the same time that Montana Democrat Max Baucus unveiled his overhaul proposal as head of the Senate Finance Committee.
Marketplace Senior Business Correspondent Bob Moon tells us this latest plan could bring some changes to existing employee benefits.
Bob Moon: The proposal would put a limit on tax-free savings that workers are allowed to tap for out-of-pocket medical expenses. Those flexible-spending accounts, or FSAs, would be capped for the first time, at $2,000 a year.
At Wage Works, an employee-benefits administrator, Jody Dietel says the change would hit millions of FSA users with hundreds of dollars a year in new taxes.
And while FSAs can currently be used to pay for any over-the-counter medicines, she says proposed new limits on those purchases would put an unnecessary burden on the whole system.
Jody Dietel: It really is going to drive up healthcare costs in our view, because it will require you to go see the doctor to write you a prescription to get those over-the-counter medicines paid for by your account-based plans.
The money that workers put into their FSAs would also be counted toward a new federal cap on employer-provided medical benefits. And if the total value of those benefits exceeded the limits, the amount over the cap would be hit with a stiff new tax.
At the benefits consulting firm the Segal Company, Kathy Bakich says that 35 percent tax could catch many employers and employees off guard.
Kathy Bakich: Lots of other things come under that cap, too. It’s not just your health coverage, it’s your dental, your vision, your hearing aids, your drugs, any health reimbursement account contributions. Everything is in there.
Supporters of the tax say its aimed at so-called gold-plated health plans lavished on the highly paid. But at Health Policy and Strategy Associates, consultant Robert Laszewski cautions they would probably end up wiggling out it.
Robert Laszewski: Politicians say, “Well, we’re going to tax partners of Goldman Sachs.” But I think what would happen there is, Goldman Sachs would probably cash these people out and let them go buy individual coverage, not subject to the 35 percent tax, no matter how expensive it is. So there’s probably a way for the Wall Street types to get around it.
Laszewski says it’s actually benefit packages worth far less than the coverage enjoyed by those fat cats that would most likely fall victim to the higher taxes. The real flash point he says could be coverage plans negotiated under union contracts for police, firemen and teachers.
I’m Bob Moon for Marketplace Money.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.