Flexible Savings Silliness

It's Open Enrollment time at our health insurance company, which means it's time to complain about one of the more ridiculous parts of health insurance! (Nobody ever talks about the good parts of health insurance. Suffice it to say, while I think there are HUGE problems with health insurance, our particular brand is probably as good as it gets. And the people who work there are amazing and awesome.)

Flexible Savings Accounts: The principle is sound--pre-tax dollars, taken from your paycheck, placed into an account be used for health-related purchases only. This is a great idea, except for one small, terribly important detail: the money must be used during that calendar year. Anything not used simply disappears.

For example, let's say I chose to put $1800 into my FSA for the calendar year 2009. This means that every month, $150 is taken from my paycheck, pre-taxes. Any time during 2009, I can use some or all of this money to pay for doctor's visits, medicines, dentists, or medical equipment. But let's say that I end up having an extremely healthy year--I don't break an arm, end up in the hospital, or need four root canals. (Don't laugh. It can happen, at least in my mouth.) Come December, I've only used $400 of my FSA money. If I don't find a medical use for that money by March 15 of 2010 (the government has graciously given us a three-month grace period), it disappears. It doesn't roll over, it doesn't sit there waiting for the day that I have a horrible car accident and end up in the hospital for two months recovering, it is gone (to the federal government).

This creates two problems: 1) I am more likely to under estimate my FSA next year, which reduces the effectiveness of this program, and 2) I am going to scramble to find ways to spend that money. Maybe I'll get my teeth bleached, or buy 3 years worth of contact lenses, or convince the doctor that Gee really needs the next size up in crutches (even if he doesn't), just so I don't lose that money. That is a really monumentally stupid way to approach your health spending habits.

FSAs need to be tossed out in favor of Health Savings Accounts--that money is pre-tax, can only be used for medical expenses, but it doesn't ever expire. That extra money sits in there, waiting for when you need it. Doesn't that seem a heck of a lot more logical?

Of course, logic isn't really the defining characteristic of regulated health care.

I don't like the current reform bill before the House or the Senate. I actually hope it fails. But it is clear to me that some changes have to be made. Bradley wrote some posts on our political blog with some ideas on where to start--what do you think?