Reforms bode ill for tax-free health accounts

Tens of millions of consumers face higher costs for over-the-counter medicines such as cold remedies and vitamins if Democrats keep a provision in their health care overhaul bills to limit the use of tax-free health care spending accounts.

Consumers no longer would be able to tap their flexible spending accounts to make health-related purchases without a doctor’s approval, which critics say would drive up health care costs.

The House and Senate’s bills vary slightly on the restrictions. The House’s plan would limit purchases from the pretax accounts to medicines, except insulin, that require a prescription. The Senate’s plan would require a doctor’s note, even if the product is available over the counter.

Supporters of flexible spending accounts say they are lobbying to insert a clause that would allow medicines that previously required prescriptions and now don’t — such as allergen blocker Claritin — to be protected purchases.

“This is going to create a situation that’s going to be very confusing to the consumer,” said Joe Jackson, chairman of the group Save Flexible Spending Plans and chief executive officer of WageWorks, a company that provides and administers flexible spending plans.

The restriction on the account spending — which also would apply to health savings accounts — is expected to save $5 billion in tax revenue over 10 years, according to the Joint Committee on Taxation. Proponents of the restrictions say flexible spending accounts are common in the upper and middle classes and used by people whose employers provide the plans and people who can afford to sock away money from each paycheck. The accounts also allow consumers to use tax-free status on goods, such as contact lens solution, that usually have sales taxes added to the purchase.

Supporters of the flexible spending accounts say the restriction would increase health care costs because consumers with flexible spending accounts would have to make more trips to doctors’ offices, and submit receipts, to obtain approval for over-the-counter purchases.

“They’re not looking at the behavioral effects that this will have: making people switch to prescription drugs,” which would be covered, said John Berlau, a policy director at the Competitive Enterprise Institute, a free-enterprise group based in Washington. “By moving the incentive toward prescription drugs, it’s going to push up health care costs.”

The provisions are among a slew of differences in the bills that lawmakers are hoping to negotiate in the coming weeks in order to send a final bill to the White House for President Obama’s signature. House Democrats began meeting Tuesday to review the differences between the bills, including provisions on abortion, taxes and the public option.

“There are significant differences,” Majority Leader Steny H. Hoyer of Maryland said Tuesday after a meeting with House Democratic leaders. “We expect to move very, very forcefully on this effort to bring these two bills together.”

Top Democrats in the House and Senate met with Mr. Obama on Tuesday afternoon — some in person, some by phone — to start merging the bills.

Also on Tuesday, C-SPAN Chairman and Chief Executive Officer Brian P. Lamb sent a letter to Hill leaders asking them to allow the negotiations to be televised to ensure that the process is transparent. Mr. Obama made a campaign pledge to air health care reform negotiations on the public service political network, a promise that has been used against him as the process went behind closed doors on Capitol Hill.

House Speaker Nancy Pelosi, California Democrat, defended the process and said there many not be a formal conference.

“There has never been a more open process for any legislation in anyone who served here’s experiences,” she said.

The office of Senate Majority Leader Harry Reid, Nevada Democrat, praised C-SPAN for its coverage of hundreds of hearings on the overhaul but did not say whether the network would be allowed to provide access to the closed-door meetings among Democrats to create a final bill.

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