One of the things that galls taxpayers is the “use it or lose it” practice in government. We’ve all heard the horror stories about bureaucrats rushing to spend every last nickel in their budgets by the end of the year so they wouldn’t get their budgets chopped the following year.
That practice leads to some pretty creative purchases that often make their way on to the nightly news as examples of wasteful and unnecessary spending. Some call it the “Fleecing of America!”
While we may want to beat up on government workers for their spending practices, the system is the real problem – it encourages unnecessary spending.
Former Gov. Locke tried to end the practice by allowing state agencies to retain a portion of their budget surplus and send the rest to fund education.
Good idea. Congress should do the same thing when it comes to health care.
Here’s the problem.
Currently, workers can set aside pre-tax dollars to pay nonreimbursed expenses, deductibles and co-pays for health insurance, dental work, prescriptions, optical services and child care. It is called Section 125 or flexible savings accounts (FSA). The problem is, if workers don’t use their money, they lose it!
Here is how it works. Every December people must guess how much they will spend for health and child care in the coming year. While some expenses, such as dental care and medical checkups, new glasses, prescription costs and child care expenses can be planned, it leaves little room to defray expenses for unanticipated medical or dental procedures.
For example, last September during a routine checkup, my dentist discovered a deep cavity under a crown on a back tooth. It would be expensive to fix, requiring a root canal. But because my wife had undergone oral surgery, my 2004 account was dry and I could neither borrow from my 2005 funds nor did I have a reserve built up from previous years – because reserves are not allowed. So, despite having the maximum of $2,500 taken from my paycheck each year, I had to wait until January for the procedure. Fortunately, I had the option to postpone the treatment.
In 2003, it was a different story. We had few medical expenses, so we spent much of November and December trying to figure out ways to use the money so it wouldn’t be left on the table. Even though we bought several pairs of glasses and rescheduled checkups to fit in the calendar year, we lost some of the money we had set aside.
Congress should amend the Section 125 program to allow people to set aside more money than is currently allowed and to carry over unspent reserves from one year to the next. But we don’t need to wait for an “act of Congress” to get started on this fix.
The American Benefits Council (ABC), joined by organizations like the Association of Washington Business, believes the Internal Revenue Service (IRS) can step in now without congressional action. The IRS can start a pilot program that would allow people in Section 125 programs to carry over a limited amount of their unspent reserves from year to year.
This change would allow people to direct their health care dollars where they’re needed most – it would reduce the amount of money that is “left on the table.” While the carry over would not apply to child care expenses, it seems like a reasonable start. Let’s see how it works and then urge Congress to look at expanding it.
It’s common sense that people will be more cost conscious when they’re spending their own money on health care services rather than just billing the insurance company. But the current 125 Program actually punishes people who set aside “too much” money for health care. That sends the wrong message. Giving people greater choices while making it possible for them to keep more of their own money will help control rapidly rising health care costs.
Don C. Brunell is president of the Association of Washington Business.