Monday Highlights

August continues, in a few weeks #1 daughter will give college the old college try.

  1. Teleos and man.
  2. Sodding Sod?
  3. Obamacare consequences.
  4. In a post on implicit bias … not noticing other implicit biases, like that women in philosophy (and in academia in general) are likely more common than conservatives.
  5. Oh. Yech. Yech, yech, blech. Don’t even think of the word smell when you read that.
  6. In the news.
  7. Obama’s government, standing firm against equal protection, wasn’t always that way though.
  8. Advice for the week.
  9. An application of the above.
  10. Of God and man.
  11. It’s not working, so keep it up, eh?

10 responses to “Monday Highlights

  1. It’s not working, so keep it up, eh?

    I bet those AQ attacked by drones don’t share the opinion that they don’t work.

    Obamacare consequences.

    1. fSA accounts were not ‘unlimited’

    2. all costs must be netted against benefits. If I had a child with serious medical problems I’d rather have the ability to buy insurance without a lifetime spend cap or pre-existing condition discrimination.

  2. Actually, the author doesn’t really understand what he’s trying to object too. First of all, flexible spending accounts for an individual were capped to $2500. For dependants they remain at $5000 so the hypothetical person caring for a sick child is no worse off for Obamacare in that regard.

    30 million people is probably a somewhat accurate figure, but it’s misleadingly giving the impression that most FSA’s are about serious health care spending. Most FSA’s are used to pay co-pays on doctors visits, eyeglasses, dental exams etc. All the FSA accomplishes is that it allows you to save on taxes for medical spending without itemizing your deductions. Assuming a 25% bracket, then, you can use an FSA to pay for your $500 dental work by earning simply $500 in wages. If you were paying for that with aftertax dollars, you’d need to earn $666.66. This is nice to have but I’m willing to cap the benefit if it helps someone who is really dealing with a sick child have normal coverage. And note it does tend to drive health care inflation by making consumers less sensitive to price. Without the FSA I might have said if I earn $500 I keep $375 therefore I’ll spend that much on glasses. With the FSA I’m able to spend 33% more without any financial impact on myself.

    For serious medical spending though, FSA’s don’t do much because you’re still stuck with having to earn the money to pay the bills to begin with.

    Finally if you are stuck with serious medical bills, you already have the ability to deduct them from your taxes if they are over 2% of your adjusted gross income so in that case the FSA becomes only marginally important.

  3. Boonton,

    . First of all, flexible spending accounts for an individual were capped to $2500. For dependants they remain at $5000 so the hypothetical person caring for a sick child is no worse off for Obamacare in that regard.

    ACA capped FSA spending. Prior to ACA FSA accounts had no cap. From here, “The IRS imposes no dollar limit on health care FSA contributions, but employers
    generally do.”, which indicates that there were no limits … just a few lines down it indicates that ACA modifies what are qualified expenses and also caps the contributions.

    I see. You insist that it far better that you spend other peoples money (which makes you far more sensitive to price) … gotcha. Logic seems to have escaped you today.

    So the point of the article was correct, you could use FSA accounts for exactly the situation indicated, but now caps are imposed where they had not been.

  4. Boonton,
    AS just noted, they were not limited prior to ACA “but employers often do (limit them)” … the IRS did not have any limits on FSA accounts.

  5. You’re right about individual FSA accounts but the case of a parent caring for a sick child would be a dependent care FSA which is $5K cap and I believe was never unlimited.

    In reality you’d never find an unlimited FSA because these accounts are prefunded. Say I choose to put $1200 in one for 2014. In January $100 is held back from my paycheck. But I spend $1000 on medical care. I will be reimbursed $1000 even though I only earned $100. No employer would want to allow an unlimited FSA because they could end up having to front an entire year’s payroll up front. (Example: I elect $75,000 for 2014. On January 30th I submit my wife’s massive hospital bill for $100,000….the FSA has to pay me $75K. On Feb 2nd I quite my job leaving the FSA account in the red).

    But you’re missing the larger point. IF you have massive medical expenses, you get the itemized tax deduction. The FSA is ideal for trivial to modest sized medical expenses and expenses for dental and vision. The FSA isn’t a primary vehicle for funding serious medical expenses and to the degree you have serious expenses (either yourself or your spouse or kids) you would benefit from the tax deduction for medical expenses instead.

  6. I see. You insist that it far better that you spend other peoples money (which makes you far more sensitive to price) … gotcha. Logic seems to have escaped you today.

    The FSA isn’t going to work with big ticket health spending. The reality is most FSA spending happens either to cover copayments on spending that’s covered elsewhere or to cover things that isn’t covered by insurance at all (eyeglasses, dental care, some over-the-counter things like pregnancy tests or diabetes test strips). No one would use an FSC to cover, say, chemotherapy or the entire medical cost of childbirth.*

    So on the things the FSA does cover, it does in fact dull one’s sensitivity to price. In the normal world there’s a difference between buying something for $500 or buying something for $375. It’s called $125. In the FSC environment, though, there isn’t. So clearly that does contribute to health care price increases (granted I don’t think it’s by any means a major player, but it’s a factor). Likewise if FSA’s are covering co-pays, remember the purpose of copays is to discourage people from overusing insurance. There you may get more serious increases in healthcare spending. If the FSA encourages me to visit a doctor with a $20 copay 5 times more in a year than I otherwise would have, that could very well drive and additional few hundred dollars per visit in costs if each visit is accompanied by a bill to the insurance company for the balance of the doctor plus various tests and scripts.

    * Another reason FSA doesn’t work so well on big spending is the ‘use it or loose it’ feature. If you elect to put $5,000 in your account next year, your paychecks will be docked for that amount. If in 2014 your medical bills only amount to $2000 your account gets wiped out at the end of the year.

  7. Boonton,
    According to the linked document FSA acounts had no IRS limit. Employers could contribute and could set limits however, perhaps that what you recollect.

    IF you have massive medical expenses, you get the itemized tax deduction.

    However if you have intermediate but sustained medical expenses, like a kid needing special care … which might (like in the 10-20k per year range) you might want the tax break of a FSA to soften the blow. But no longer. Posing insurance as the alternative is basically (as noted) getting other people to pay for it.

    In reality you’d never find an unlimited FSA because these accounts are prefunded

    I’m unclear on how that isn’t “the IRS didn’t place limits but employers often did” that I mentioned. Now the government has decided to (a) limit those things qualifying and (b) cap it themselves.

    So on the things the FSA does cover, it does in fact dull one’s sensitivity to price

    No. It. Doesn’t. If you can spend pre-tax dollars, something which costs 300 here and 500 there, it is still to your advantage to shop around. A dollar saved is still an FSA dollar that can be spent elsewhere. I’m sorry for your (alleged) 15% tax bracket preson, a 1/6th discount on a 20$ co-pay is about $3 bucks. If you think that makes you change your mind about whether to go … you’re back in the “I’m saying this to win an argument, not because I believe it to be right category.

    Another reason FSA doesn’t work so well on big spending is the ‘use it or loose it’ feature. If you elect to put $5,000 in your account next year, your paychecks will be docked for that amount. If in 2014 your medical bills only amount to $2000 your account gets wiped out at the end of the year.

    Yes. The FSA is not insurance. You put into it the amount that you normally spend per year on health maintenance (or if you anticipate elective medical expenses). If (as noted in the article) you have high maintenance costs, the government has just upped your costs by 15-25%. A big F-U to those with long term disabilities and regular high maintenance costs.

  8. However if you have intermediate but sustained medical expenses, like a kid needing special care … which might (like in the 10-20k per year range) you might want the tax break of a FSA to soften the blow.

    1. The individual FSA account was uncapped, but as I pointed out it was always effectively capped because otherwise employers could be put in the position of having to front a year’s worth of pay to an employee.

    2. The individual FSA would only cover you, a kid needing special care would be covered by a dependent care FSA which I believe is unchanged at $5K per year max.

    3. It’s one or the other. You can’t deduct your medical expenses if you used an FSA to pay them. So if you were laying out $20K in medical bills for your kid you’d be using the tax deduction unless $20K is 2% or less than your yearly income.

    I’m unclear on how that isn’t “the IRS didn’t place limits but employers often did” that I mentioned.

    I’ll explain it again. Before the year starts you decide how much to fund. Say $1200. That’s $100 per month. Each month $100 is deducted from your pay. On January you incur a $1200 expense. You mail in your receipt and you get reimbursed $1200. Where did the money come from? You only put in $100! You were essentially fronted the money by your employer via the FSA.

    what if you just never got $1200 worth of bills? Well you have to keep getting $100 per month deducted for the whole year and then you loose the funds. That pays the expenses of running the FSA.

    Suppose the FSA was unlimited and your employer was willing to go along. OK, you make $90,000 a year. You elect to put the entire $90K into the FSA. In January $7,500 is withheld from your pay (your full check). You incur a $90K operation and get reimbursed. You then quite your job. The FSA has to reimburse you for the full $90K even though you never put anywhere near that into the account. Essentially you’ve found a way to get a full year’s pay issued to you in advance, tax free.

    Now maybe you see why your employer might be willing to risk that with a $5k capped account but not a truely unlimited account. It also puts some pause to your argument that FSA is about ‘your money’ while insurance is ‘other people’s money’.

    No. It. Doesn’t. If you can spend pre-tax dollars, something which costs 300 here and 500 there, it is still to your advantage to shop around. A dollar saved is still an FSA dollar that can be spent elsewhere.

    Yes but the advantage is dulled. Imagine the choice is not between glasses that cost $500 versus $375 but between glasses that cost $500 and, say, a short vacation that costs $500. To buy the former I have to earn $500. To buy the latter I have to earn $666.66. The FSA effectively gives me a discount for shifting more discretionary spending towards medical items. In other words, health care doesn’t compete on an even playing field with other types of spending so you are incentivizing people to learn towards greater health care spending.

    As I pointed out with the example of an insured person using an FSA to cover copays, this can end up causing an even greater increase in spending ‘other people’s money’ (how you describe insurance).

    I’m sorry for your (alleged) 15% tax bracket preson, a 1/6th discount on a 20$ co-pay is about $3 bucks….

    You forget about the use it or loose it feature. If you put $1200 in and only had $1100 in bills and it’s late November you’re either going to loose that $100 remaining or you’re going to have to spend it. Then the ‘discount’ isn’t $3 for the $20 copay but the full $20 since you don’t get the money back if you have no medical bills.

    If (as noted in the article) you have high maintenance costs, the government has just upped your costs by 15-25%.

    Well this would apply to someone who both has massive medical bills year after year and good income. Not totally rare but somewhat unusual. Many people with massive medical bills have no or little income which means the tax advantages of an FSA option would not be helpful. If you do have massive medical bills and a high income to go with it you can simply itemize your deductions and get the tax savings via that more traditional route….esp. since it was at the whim of your employer whether or not you could count on being able to use an FSA for amounts greater than $2500 anyway. It seems hard to imagine that most people who are anywhere near this boat wouldn’t be benefited more by the ability to get somewhat reasonable insurance coverage without pre-existing condition discrimination and without lifetime payout caps.

  9. Boonton,
    So I’m curious, this was a big stab in the back of the self employed then?

    So if you were laying out $20K in medical bills for your kid you’d be using the tax deduction unless $20K is 2% or less than your yearly income.

    What is the distinction here. If you take it as a deduction it subtracts from your income calculation, if you take it as a FSA it subtracts from your income calculation and is not eligible for employer contributions.

    Now maybe you see why your employer might be willing to risk…

    I always did. When I said, there was no cap before except as set by employers … that meant exactly that. An informative sheet on FSA’s I found looking this up, offered that “employers usually capped it at 2.5 to 5k …” nice of the state to pick the minimum. Cause clearly FSA’s are a bad thing.

    No I don’t see how the FSA is about “other people’s money”, unless you are going to leave your job and never get hired again by anyone who might even try to talk to your former employer.

    And no, the advantage is not dulled. Your logic is. You have a family. You take a 3k FSA this year. You spend 5k on medical expenses of which the first 3 are pre-tax. Exactly what incentive do you have to ignore costs? None.

    As I pointed out with the example of an insured person using an FSA to cover copays, this can end up causing an even greater increase in spending ‘other people’s money’ (how you describe insurance).

    And as I replied (and you ignored) a $3 savings on your co-pay is meaningless.

  10. So I’m curious, this was a big stab in the back of the self employed then?

    Not really, I don’t think FSA even apply to the self-employed (whose your employer ‘pre-funding’ them if you’re self employed?!)

    If you take it as a deduction it subtracts from your income calculation, if you take it as a FSA it subtracts from your income calculation and is not eligible for employer contributions.

    It’s the same thing. A person who makes $100K and takes $10K in deductions is taxed on $90K. If the same person pur $10K into a FSA account they would be taxed as a $90K person. Of course both methods have pros and cons but fundamentally they are very much alike.

    No I don’t see how the FSA is about “other people’s money”, unless you are going to leave your job and never get hired again by anyone who might even try to talk to your former employer.

    Unless you’re engaged in money laundering, no employer is going to front tens of thousands of dollars to you at the beginning of the year unless you’re pay is very, very high or they have legal recourse to treat it as a loan and try to collect from you. At the $5K level or even slightly higher it’s more to the tune of the risk of doing buisness. Most people aren’t going to quite just for the sake of scoring $5K from their employer. Regardless, legally swiping a full year’s pay is probably pretty tempting, even if it costs you a bad recommendation. And even that may not matter. Lots of people line up a new job *before* they quite their current one so the new employer may never even bother to contact the old one (and FSA spending is probably protected under medical privacy even if they did).

    You spend 5k on medical expenses of which the first 3 are pre-tax. Exactly what incentive do you have to ignore costs?

    Your total costs don’t matter here. You’re faced with two eyeglasses. Absent FSA or deduction one pair requires 10 hours of work, the other 14 hours. You are going to treat the second as being more expensive. Likewise keeping your old pair and going out to a nice bed and breakfast for the weekend will cost 6 horus of work. Now with FSA the gov’t is essentially saying they will make someone else work 4 hours and give the proceeds to you. Now the expensie pair of glasses is only 10 hours of work, and the cheap pair is 6 hours, one a equal footing with the bed and breakfast weekend whereas before the B&B was the least expensive of all the options.

    You’re not getting around it, the effect of the policy is to shift spending out of non-health care items into health and to shift spending in health from cheaper items to more expensive.

    And as I replied (and you ignored) a $3 savings on your co-pay is meaningless.

    You didn’t get it. It’s November and you put $1500 in your FSA but only have $1400 of receipts to submit against it. The $100 balance is subject to being totally lost if you end the year without using it because your paycheck is docked the whole $1500 you put in for last year (this is the other side of the risk coin, the plan keeps the left over balances from people like you to make up for the costs of those who leave the job with their plan in the red as well as the general admin. costs of keeping track of all this).

    Now the savings on making that extra trip to the doc isn’t $3 but the full $20 copay. But if you’re insured (and your employer probably does offer coverage if he offers FSAs), then this isn’t driving $20 of health spending but more…..like a lever apply leverage the $20 ‘free visit’ to you is probably another $60 from the insurance company to the doc. plus if various blood tests are covered then maybe even a few hundred more. $20 can leverage up to $200-$400 in spending that wouldn’t have otherwise happened at that time quite easily.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>