House OKs rollovers for health savings accounts

By Mark Sherman
Associated Press

WASHINGTON — People who set aside salary in tax-free accounts for health bills could shift unused funds into the next year or long-term health savings accounts under legislation approved yesterday by the House.

The legislation, approved 273-153, is one of three measures that Republicans are pushing during a week of increased focus on health care and the uninsured.

All three have passed the Republican-led House before, but have been blocked in the Senate, leading House Democrats to assert that the new round of votes is merely political theater.

A bill to place limits on medical malpractice awards passed, 229 to 197. The House is expected to vote tomorrow on legislation to let small employers buy into national health insurance plans to get more affordable rates for employees.

"We're here today to debate issues that have already passed this House in bills that clearly won't make a dent in the problem of the uninsured," said Rep. Sherrod Brown, D-Ohio.

Flexible spending accounts help employees with co-payments, deductibles and other health expenses not covered by insurance.

Employees who establish flexible spending accounts agree to set aside a specified amount of salary; for example, $1,000 for medical costs not covered by their health insurance. Workers' taxable income is then reduced by that amount, saving them money at tax time.

Employees currently forfeit unused money to their employer, a major reason that spending accounts are held by only 7 million, or 18 percent, of the 37 million eligible employees, supporters say.

About 16 percent of American companies offer the spending accounts. Most companies with more than 200 employees do.

The use-it-or-lose-it provision also encourages a frenzy of end-of-year spending on nonessential health procedures, supporters argue.

Rep. Ed Royce, R-Calif., said his interest in changing the law arose from his wife's purchase of glasses she didn't really need. "She purchased them because she said she didn't want to lose the money in her flexible spending account," he said.

The bill would allow up to $500 left over at the end of one year to be used for healthcare expenses in the next year or invested in the health savings accounts that were created in last year's Medicare law. The rollover provision was included in the House-passed version of the Medicare bill but was dropped in negotiations with the Senate.

While Democrats said they back rolling over the money from one year to the next, they opposed the provision that would allow people to invest it in the new health savings accounts. They argue that those accounts are tax shelters for the wealthy.

Health savings accounts are available to people with high-deductible insurance coverage. Money can be invested and spent tax free. The earnings also grow free of tax.

"The wealthy are able to take advantage of health savings accounts, but the poor are not," said Rep. Louise Slaughter, D-N.Y.

Democrats also said the bill's estimated $8.4 billion cost over 10 years in lost tax revenues was not paid for, but they failed in their effort to amend the legislation to close corporate tax loopholes to pay for it and strip the health accounts provision.